Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

ABERDEEN CORPORATION ORDER CONFIRMATION BILL

Read the Third time and passed.

Oral Answers to Questions — MINISTRY OF DEFENCE

Nuclear Tests

Mr. Emrys Hughes: asked the Minister of Defence, what study he has now made of the recent nuclear explosions over the Pacific; and what lessons have been learnt in regard to methods of defence for the population of Great Britain against attacks by similar nuclear weapons.

The Minister of Defence (Mr. Duncan Sandys): The technical analysis of the tests has not yet been completed. Since their main purpose was to establish the effectiveness of the principles of weapon design, and since the explosions took place at a very high altitude, they will not contribute much to our knowledge of methods of active or civil defence.

Mr. Hughes: Do I understand the Minister to say that we have not learned anything about how to defend this country as a result of these tests? Can he tell us the difference between a "clean" bomb and a "dirty" bomb, and to what extent can he defend us against either?

Mr. Sandys: The hon. Gentleman asks an awful lot of things in a supplementary question. I thought I had made it clear that these tests were not civil defence tests or anti-aircraft tests; they were tests to determine whether the calculations that had been made by our scientists about nuclear explosions were correct.

Mr. Stokes: May I ask the Minister whether he can at least tell us, and so relieve a great deal of public anxiety, if there was or was not any harmful fallout'? That is what everybody wants to hear about.

Mr. Sandys: It is obviously a matter of degree, and I do not think that I can answer a question of that kind without considering exactly what I say.

Mr. Stokes: If I put down a Question will the Minister answer it?

Mr. Sandys: I will do my best.

Redundant Officers and N.C.O.s (Compensation)

Mr. Lipton: asked the Minister of Defence whether he will now state what compensation will be paid to Regular officers and non-commissioned officers to be discharged from the Services as redundant.

Mr. G. Brown: asked the Minister of Defence (1) when he expects to be in a position to inform those members of Her Majesty's Forces whose services will be terminated as a result of the Government's defence policy;
(2) whether he will now state the compensation terms for the officers and men whose services will be terminated as a result of the Government's defence policy.

Mr. Sandys: A scheme for compensation to be paid to Regular officers and non-commissioned officers who have to be prematurely discharged as a result of the contraction of the forces is being prepared and I hope to be able to make an announcement in the course of the next few weeks.
Plans for the detailed implementation of our defence policy are also proceeding and certain decisions should be ready for announcement shortly. Until the necessary changes in structure and distribution within each Service are settled in detail, it will obviously not be possible to decide exactly how many officers and N.C.O.s in each branch are redundant.
I am fully aware of the anxiety which exists among those who may be affected; and I can promise them that we shall make every effort to inform them of their position at the earliest moment practicable.
Meanwhile, I can tell them that we are examining how far it is possible, consistent with the efficiency of the Services, to give individuals within the categories concerned an opportunity of applying voluntarily for release with appropriate compensation. Though I cannot yet say for certain, it is my hope that we may be able to effect in this way a substantial proportion of the reductions needed.

Mr. Lipton: Is not the Minister heartless to keep thousands of officers and senior warrant officers and their families in suspense for months on end? Is this the right way to treat loyal servants of the State, and is not it having a distastrous effect on recruiting?

Mr. Sandys: I think the hon. Gentleman knows quite well that it is not through heartlessness. I have personally been giving a great deal of time to this whole question. The working out of this scheme of compensation is not nearly so simple as some people seem to think. It has to take into account a whole variety of factors, including loss of service, loss of pension, loss of prospects of promotion and lots of other things. These vary not only from Service to Service, but also from branch to branch. While I fully recognise the importance of announcing the scheme and the terms as quickly as possible, I attach even greater importance to making sure that the scheme, when announced, is fair as between one man and another.

Mr. Brown: While accepting that, and welcoming the fact that the right hon. Gentleman is now getting down to it in real detail and hopes to be able to make an announcement in a few weeks, may I nevertheless point out, without any desire to score a point, that a lot of people who believe that they may be affected feel that he ought to have done some of this consideration before making the announcement, and that no matter in how friendly a manner he puts his remarks now, it is impossible to avoid a great deal of uncertainty in the minds of people at a difficult age in life, which to them seems to amount to heartlessness? Therefore, it is important that "a few weeks" should really mean a few weeks and should not get stretched out to the end of the Session. May I ask another question? I was not quite clear what

the right hon. Gentleman meant by the last part of his Answer when he said that it is hoped that some of these men may be given an opportunity voluntarily to retire with appropriate compensation. If the right hon. Gentleman does not know how many or what sort of men are affected, how will he be able to give any of them the chance to go voluntarily?

Mr. Sandys: Perhaps I may deal with the last part of that supplementary first. Obviously it is only when we know how many will be affected and in which branches the redundancy will occur that we can ask for volunteers. I have said
We are examining how far it is possible…to give individuals within the categories concerned…

Mr. Brown: Men who are going anyway?

Mr. Sandys: In the categories where redundancies occur.
On the earlier point, I do not think that when the right hon. Gentleman considers it he will regard it as a fair criticism to say that they ought to work all this out before announcing the general outline of policy in the White Paper. It would be quite impossible to work out a scheme of this kind as it is proving now, without getting a mass of detailed information from all the branches of the Services affected, including obtaining information from overseas commands. We could not have done that without the whole thing leaking out completely, and then we should have had to make the announcement about policy piecemeal. I think it was inevitable that we had to announce the broad policy without telling people all through the Services all over the world, and then work out a detailed scheme of compensation afterwards. I think that was inevitable.

Mr. Beresford Craddock: When my right hon. Friend is considering these plans will he be good enough to take into account also civilian employees in R.E.M.E. depots, for example? These are also very important when considering redundancy and our defence programme.

Mr. Sandys: What I am concerned with now is a scheme of compensation for Regular officers and N.C.O.s. As I said earlier, I do not think that those who are in civilian employment will in


most cases have very much difficulty, in the present state of the demand for labour, in finding alternative employment.

Rocket Development

Mr. Edelman: asked the Minister of Defence whether his attention has been drawn to the failure of certain experiments in the release of inter-continental ballistic weapons in the United States of America; in view of the agreement for ballistic missiles to be supplied to this country by the United States of America, if he will make a statement on the liaison maintained between the British and American experimental work on this subject; and what reconsideration he has given to his proposal to curtail the production of supersonic bombers.

Mr. Sandys: We maintain close liaison with the United States on rocket development; and I am kept informed of the progress of American projects in which we are interested. I see no reason to revise our policy on supersonic bombers.

Mr. Edelman: Is not the right hon. Gentleman aware that on 11th June in Florida there was a conspicuous public failure of a ballistic weapon on which he appears to be relying for our defence? Is not the right hon. Gentleman in danger of getting the worst of both worlds if he relies on unproved missiles while at the same time allowing to run down the capacity of factories like Armstrong Whitworth at Coventry, which are capable of making the best sort of supersonic bomber?

Mr. Sandys: It would be impossible to introduce a new supersonic bomber in under ten years at least. There is little doubt that during that time we and the Americans will have developed efficient ballistic rockets. It is also probable that in those ten years the Russians on their side will have introduced a system of guided missile defence which would make even the supersonic bomber exceedingly vulnerable.

Belgium (Compulsory Military Service)

Mr. Shinwell: asked the Minister of Defence whether the United Kingdom representative at the North Atlantic Treaty Organisation agreed to the request of the Belgian Government that the compulsory period of military service in

Belgium should be reduced from 18 to 15 months.

Mr. Sandys: This is a matter for the Belgian Government to decide for themselves in the light of their obligations to N.A.T.O., and subject to consultation with the North Atlantic Council.

Mr. Shinwell: Will the right hon. Gentleman be good enough to answer the Question? Did our representative at N.A.T.O. agree to this proposal? Is not it customary, if any of the Governments included in N.A.T.O. wish to make any change of this kind, for N.A.T.O. to be consulted? What did our representative say about this, in view of the fact that every Supreme Commander in N.A.T.O. is demanding two years' National Service and the only country that has responded is the United Kingdom? Why was Belgium allowed to reduce the period of National Service?

Mr. Sandys: We have not got to agree. There has to be consultation, and there was consultation. Consultation means that one informs the Council of one's intention. There is then discussion, and the Government concerned in a matter of this kind is free to decide what action it wishes to take. I entirely agree that two years is a good and reasonable length of National Service and that the more the period of National Service is reduced, in this case from 18 to 15 months, the less practical results one gets from the Service men concerned.

Mr. Shinwell: Are we to understand that any of the countries included in N.A.T.O. can inform their colleagues in N.A.T.O. of their intention to reduce their period of National Service, or, for that matter, to abolish it entirely?

Mr. Sandys: That is what we are doing ourselves.

Mr. Shinwell: What, abolishing it?

Regular Recruitment

Mr. G. Brown: asked the Minister of Defence what effect the fall in Regular recruiting as disclosed by the latest published figures will have on the Government's timetable for the ending of National Service; and what steps the Government proposes to take to arrest the fall.

Mr. Sandys: The Answer to the first part of the Question is "None, Sir." As regards the second part, the Government are preparing measures to improve Service conditions and prospects.

Mr. Brown: Since the rate of recruiting is now so much below what it was before the White Paper announcement, and certainly below what it was two or three years ago, can the Minister really adhere to the view that if it goes on falling at this rate it will have no effect on his timetable for ending National Service? Surely it must.
Secondly, may I ask the right hon. Gentleman when he expects to be able to tell us what steps he is taking not only to arrest the fall but to reverse the trend? Otherwise, surely we shall be left, at a stage when National Service goes, with no forces at all. Is the right hon. Gentleman taking this matter as seriously as he ought?
May I also ask a question on mechanics? Could we have the monthly figures, which come out a long way behind, made available in the Vote Office? They are not there at the moment. They are only in the Library from where one cannot take them away to use. Could the right hon. Gentleman arrange for the monthly figures to be published as quickly as possible and made available in the Vote Office?

Mr. Sandys: I was not aware of that last difficulty. I will see if the matter can be dealt with as the right hon. Gentleman suggests.
I hope that the fall-off in recruitment at present is only temporary and that when the uncertainties, which were inevitable as a result of the major changes in defence policy, are removed, the trend will improve again.

Oral Answers to Questions — EMPLOYMENT

Government Establishments (Redundant Workers)

Mr. Swingler: asked the Minister of Labour what machinery exists between his and other Departments for the discussion of redundancy problems in Government establishments.

The Minister of Labour and National Service (Mr. Iain Macleod): The arrangements for consultation which I described

in the defence debate on 17th April cover both Government establishments and firms engaged on defence work.

Mr. Swingler: Before redundancies are declared does the Minister receive advance information so that he can study the employment situation locally and advise on the prospects of alternative employment or on the need to create new employment in those localities?

Mr. Macleod: Yes, indeed, I do. I get as long notice, as my Answer to the next Question will show, as can possibly be given. In all cases labour considerations, including the level of unemployment in the neighbourhood, are taken into account, although those considerations may not always, of course, prevail.

Mr. Swingler: asked the Minister of Labour what advance information he obtained about redundancies at the Royal Ordnance factories at Radway Green and Swynnerton; and what special steps he has taken to find alternative employment for those involved.

Mr. Iain Macleod: I was informed some time ago, before any decision had been taken about the present redundancies, that it would probably be necessary to reduce the numbers employed at these factories within the current year. Some three weeks before the earliest discharges took effect, representatives from my local offices attended at the factories to register those who needed help in finding other work. Twenty-three men from Radway Green have already been placed in employment and nearly 70 others are under submission although their discharge does not become effective until 28th June. Thirty-two of the 190 part-time workers from Swynnerton who registered for other work have been placed in full-time work. We shall continue to do everything possible to help those who have not yet found other jobs.

Mr. Swingler: When the Minister received this information, did he take into account the fact that in the north Staffordshire area between these two factories the level of unemployment is a great deal higher than the national average? Did he also consider facilities for conversion to civil production in these factories in order to find alternative employment for the men?

Mr. Macleod: Regarding the first part of the supplementary question, that was certainly one of the factors taken into account, although there are only a limited number of occasions on which labour considerations can be a determining factor. Concerning the second part of the question, the allocation of factory space is, of course, a matter for the Minister concerned and the Board of Trade. As the hon. Gentleman knows, from Questions which he has put down to the Minister of Supply and other Ministers, that matter has been gone into.

Newcastle-under-Lyme

Mr. Swingler: asked the Minister of Labour the present level of unemployment in the Borough and Rural District of Newcastle-under-Lyme; and how it compares with the national average.

Mr. Iain Macleod: The latest available figures relate to 13th May. The number of unemployed persons on the registers of the Newcastle-under-Lyme Employment Exchange at that date represented 2·4 per cent. of the total number of employees in the area, compared with 1·5 per cent. in Great Britain as a whole.

Mr. Swingler: In the light of the decline in the pottery industry which has been going on for some time and the fact that now 600 workers have been sacked by the Government from these Ordnance factories, will not the Minister make some representation to the Minister of Supply to use this magnificent equipment at Radway Green Ordnance factory for conversion to civil production?

Mr. Macleod: These figures are certainly high and I have constantly put before my colleagues the labour considerations to which the hon. Member referred. I shall be glad to discuss with the hon. Member the last point which he raised.

Mr. Harold Davies: Has the Minister really considered converting some of the thousands of square feet which are spare at the Radway Green factory to some kind of civil production? Has his Department really considered this matter with the Minister of Supply?

Mr. Macleod: As I indicated earlier, this is not a matter for the Minister of Labour and National Service, but for the Minister concerned, with the Board of Trade.

Employment Exchanges (Clayton-le-Moors, Oswaldtwistle and Rishton)

Mr. H. Hynd: asked the Minister of Labour what representations he has received from the local employment committees concerned about his proposal to close the employment exchanges at Clayton-le-Moors, Oswaldtwistle and Rishton; and what decision he has reached as a result of those representations.

Mr. Iain Macleod: The two committees concerned have asked me, by a majority in each case, to retain the offices at these places. I have not yet reached a final decision but the committees do not appear to have brought forward any new point and I do not think I shall be able to agree that the offices should not be closed.

Mr. Hynd: Will the Minister take into consideration that he is proposing to close three out of four employment exchanges in this constituency, and is not that a rather drastic action?

Mr. Macleod: Of course, it has not in any sense been done on a constituency basis. I have reviewed all the employment exchanges throughout the country and in the case of these offices the reason is proximity and nearness to Accrington. I will take into account what the hon. Gentleman has said before reaching a final decision.

Mr. Robens: As the Minister submitted to this House a list of employment exchanges which he proposed to close and indicated that he would first consult the local employment committees and obtain their advice on the matter before taking action, will he inform the House, in the same way as he told us about his first proposals, what exchanges he actually proposes to close before he takes action, so that we may have an opportunity to express our views upon the whole matter?

Mr. Macleod: No, I do not think I will give that undertaking. I told the House in detail of my plans and I said I would have full discussions with the local employment committees and other people concerned. After that it is necessary for me to make up my mind.

Mr. Robens: As the Minister did bring the whole matter to the House, and as


I am in a way responsible for labour relations on behalf of the party on this side of the House, may I ask whether it will be necessary for me to put down a Question about every employment exchange in order to elicit information about it?

Mr. Macleod: Of course, the right hon. Gentleman can follow what procedure he wishes; but I have no wish to be difficult about this and perhaps I could have a word with the right hon. Gentleman later. I will try to find a way to produce the information which the right hon. Gentleman requires. I am merely saying that I am sure it would be wrong to make a statement to the House on each of the 150 different cases.

Oral Answers to Questions — EGYPT

Expelled British Nationals

Mr. Remnant: asked the Secretary of State for Foreign Affairs the total amount of claims by British nationals for losses resulting from their expulsion from Egypt, other than pensions.

The Minister of State, Foreign Affairs (Mr. David Ormsby-Gore): The amount of claims by British nationals arising from this and other actions of the Egyptian Government can only be known when British assets in Egypt have been desequestrated and owners have had access to their property.

Mr. Remnant: In the meantime does my right hon. Friend really expect these subjects to exist on air? Cannot some interim payment on account be made out of the blocked Egyptian sterling account?

Mr. Ormsby-Gore: That is quite a different question which has been answered in considerable detail by my right hon. and learned Friend on previous occasions, but I think the whole House knows that considerable measures have been taken to relieve the distress of these British nationals.

Mr. Stokes: Leaving aside the large vested interests, is the Minister aware that the losses incurred by private individuals are assessed by them to be about £30 million? As these individuals have all been ruined as a result of the action taken by Her Majesty's Govern-

ment, surely the Government have a responsibility whether they recover from the Egyptian Government or not?

Mr. Ormsby-Gore: We do not accept responsibility for this loss. [HON. MEMBERS: "Oh."] It was a result of the action of the Egyptian Government and not of Her Majesty's Government.

Mr. Bevan: The original Question was, what is the total amount of the claims by British nationals—not what is the ascertained amount ultimately but what are the claims? Surely the hon. Member has the amount of the claims?

Mr. Ormsby-Gore: One cannot make an accurate assessment of the claims unless one has access to this property, but of course anybody is free to make an estimate of the claims. I do not think it would be very helpful to those people we all want to help if we were to disclose any figure we have been given at the present moment.

Mr. Bevan: With respect, why does not the Foreign Office answer the Question? It is not what might be the ultimate assessment but what is the total amount of the claims? We know very well that we cannot act on that, but it is the assessment of the claimants of what they consider belongs to them. Surely that figure could be given without any embarrassment to anybody?

Mr. Ormsby-Gore: I do not think that is the case. If we are to have fruitful negotiations with the Egyptian Government about this matter, I think it may be just as well if we do not disclose any figure of what are the claims.

Mr. Remnant: Does my right hon. Friend mean that he proposes to demand from the Egyptian Government more than the claims? Can he say why these claimants should not receive some payment on account at the expense of the Egyptian Government?

Mr. Ormsby-Gore: I have already said that the question of payment on account is a different matter. I will draw it to the attention of my right hon. and learned Friend, but there have been numerous answers on that topic before.

Mr. Stokes: Is not this all nonsense? Is not the Minister perfectly aware that a committee representing all these private individuals has stated categorically what are their claims? Does he pretend that the Egyptian Government do not know? Surely he is fooling himself.

Mr. Ormsby-Gore: That organisation does not know about all the claims. A number of people have put in their claims through that organisation, but other claims have been put in only to the Foreign Office.

Russian Submarines

Mr. Edelman: asked the Secretary of State for Foreign Affairs what prior information he received from the Soviet Government, accompanying the Russian Note of 19th April, that the Soviet Government intended to deliver three submarines to Egypt; and, in view of the heightening of tension in the Middle East which the arrival of these submarines has already caused and the obligations of Her Majesty's Government under the Tripartite Declaration, whether he will ask the Soviet Government for an explanation of this action.

Mr. Ormsby-Gore: Her Majesty's Government have received no prior information from the Soviet Government that they intended to deliver three submarines to Egypt. In regard to the second part of the Question, the views of Her Majesty's Government have already been made public.

Mr. Edelman: Is not it typical of the Russians to talk of peace when they are sending aggressive weapons to the Eastern Mediterranean? Is not that a real form of warmongering? Will the right hon. Gentleman confirm that the policy of Her Majesty's Government coincides with that of the United States in securing the free passage of ships in the Mediterranean on their peaceful occasions?

Mr. Ormsby-Gore: Yes, Sir.

Oral Answers to Questions — SOVIET TRADE DELEGATION, LONDON

Mr. Osborne: asked the Secretary of State for Foreign Affairs if he is aware that, although Soviet buyers are free to travel anywhere in the United Kingdom, members of the Soviet Trade Delegation,

resident in London, may only move beyond the thirty-five miles limit from London under the strictest supervision, and that, since the persons so supervised act as interpreters, these restrictions are hampering our export trade; and if he will ease these controls.

The Joint Under-Secretary of State for Foreign Affairs (Mr. Ian Harvey): Members of the Soviet Trade Delegation are required to notify the Foreign Office forty-eight hours in advance of any journeys beyond a thirty-five mile radius from Hyde Park Corner. This requirement was introduced in March, 1952, in view of the severe restrictions imposed by the Soviet authorities on journeys in the Soviet Union by members of the staff of Her Majesty's Embassy at Moscow.
The members of the Soviet Trade Delegation may go freely about their business in this country, provided only that they notify their journeys forty-eight hours in advance. I cannot therefore accept that the regulations have a restrictive effect on trade.
The Answer to the last part of my hon. Friend's Question is "No, Sir."

Mr. Osborne: May I ask my hon. Friend—not in any spirit of hostility, but in order to try to help the export trade which is so important to us—whether, because the Russians have been petty and stupid, there is any reason why we should be the same? Will my hon. Friend ask the Board of Trade about this matter and, if he discovers real grounds for saying that it is hampering our export trade, will he have these restrictions removed?

Mr. Harvey: I am obliged to my hon. Friend for his support. I recognise that these restrictions are of a tiresome nature. On the other hand, they are imposed as a result of the actions of the Soviet Union and, until some adjustment is made by the Soviet Union, Her Majesty's Government are not prepared to relax them.

Mr. Bevan: Has not the Foreign Office heard that example is better than precept? Are these restrictions intended to irritate the Russians or British business?

Mr. Harvey: They do not interfere seriously with British business. Our intention is to get the restrictions removed.

Oral Answers to Questions — U.S. FORCES, UNITED KINGDOM (AMBASSADOR'S BROADCAST)

Sir F. Medlicott: asked the Secretary of State for Foreign Affairs if it was with his authority that the British Ambassador, Sir Christopher Steel, in a broadcast on 22nd May from Western Germany, stated that the United States contingents stationed, with British contingents, in the heart of Great Britain, would make Great Britain one of the first targets of a Soviet atomic attack; and if he will make a statement.

Mr. Ormsby-Gore: Yes, Sir. The Ambassador was making the point that Britain furnishes an important contingent to the atomic striking forces of the North Atlantic Treaty Organisation and that these forces, both British and American, are largely stationed here. Her Majesty's Government are well aware that the atomic bases, both British and American, would be one of the first targets in the event of war, but we are determined to maintain them because we believe that they represent a potent guarantee that no one will risk aggression. We regard them as a major contribution to the safety of the North Atlantic Alliance. It is one which those of our critics who are inclined to measure that contribution solely in terms of conventional forces would do well to value at its true worth.

Sir F. Medlicott: Is my right hon. Friend aware that for nearly one hundred years certain types of people in this country have been obsessed with the fear of an attack by Russia either on this country or on some other part of the British Empire? Is not it time that these fears were shaken off and that people in responsible positions, especially those who should use the language of diplomacy, should be discouraged from making statements of this kind which can do nothing whatever to place our relationships with Russia upon a more sensible and stable basis?

Mr. Ormsby-Gore: I do not think that that little lecture about history is very relevant to what the Ambassador said, which has been said by many people in this House and from both sides of the House, and which I should have thought was supported by everybody in this House.

Oral Answers to Questions — TRADE WITH U.S.S.R. AND CHINA

Mr. Frank Allaun: asked the Secretary of State for Foreign Affairs whether, since the Paris Consultative Committee has now finally proved ineffective, Her Majesty's Government will resume responsibility for the United Kingdom's commercial policy towards the countries of the Eastern bloc.

Mr. Ian Harvey: The Consultative Group is not ineffective. However, I would like to make it clear that the Consultative Group is an advisory body only and Her Majesty's Government have at no time relinquished their responsibility for the United Kingdom's commercial policy towards the countries of the Eastern bloc.

Mr. Allaun: Since the China Committee has proved such an embarrassment, will not the co-ordinating Committee quickly become as bad? Why cannot we end this stupid and damaging position altogether and take our own trade decisions, as we used to before the Battle Acts, and particularly now, when more than £1,000 million worth of trade with Russia is at stake?

Mr. Harvey: I do not accept the premise of the hon. Gentleman's supplementary question.

Mr. Zilliacus: asked the Secretary of State for Foreign Affairs whether, in view of our economic situation and the reference in the Prime Minister's reply to Prime Minister Bulganin to the desirability of expanding Anglo-Soviet trade, he will put an end to all restrictions on trade with the Union of Soviet Socialist Republics, China and other Communist-ruled countries, except in such goods as Her Majesty's Government consider should come within the scope of a Convention for the control of the traffic in arms and munitions of war.

Mr. Ormsby-Gore: No, Sir.

Mr. Zilliacus: Has not the success of the British initiative in the matter of loosening the restictions on trade with China suggested that the only way of getting a further loosening of restrictions


would be for us to take some action? Would not this be a logical basis on which we could at last reach some kind of finality in this matter of trade with nearly two-fifths of the world?

Mr. Ormsby-Gore: We have just taken some action and we have brought about a relaxaticn of the China trade control. I am bound to point out to the hon. Member that the Soviet authorities have not yet followed up the purchasing programme which they announced last year. My right hon. Friend the Prime Minister, in his reply to Premier Bulganin, has invited them to do so.

Oral Answers to Questions — INTERNATIONAL OIL COMPANIES (OPERATIONS)

Mr. Stonehouse: asked the Secretary of State for Foreign Affairs if he will instruct the British delegate to the Economic and Social Council at its forthcoming meeting in Geneva to support the setting up of an International Oil Convention under the United Nations to supervise the operations of international oil companies in the production, transportation and marketing of oil and oil products.

Mr. Ormsby-Gore: No, Sir. There is no item on the agenda of the Economic and Social Council which would properly permit discussion of such a Convention.

Mr. Stonehouse: Would not the Minister agree that it is hardly in the best interests of this country or of the oil consumers that we should depend for oil supplies upon international oil cartels over which there is no degree of public control and among whom there is no discernible competition? Would not the right hon. Gentleman at least ask his right hon. and learned Friend to have the proposal of the International Co-operative Alliance in connection with this subject placed on the agenda in Geneva?

Mr. Ormsby-Gore: We have this consideration in mind, but I do not think it would be a very suitable subject for discussion at the Economic and Social Council. There is, I am afraid, no reason whatever to suppose that oil-producing countries would surrender the control of their main raw material to the United Nations.

Oral Answers to Questions — UNITED NATIONS

Suez Canal (Security Council Resolutions)

Mr. A. Henderson: asked the Secretary of State for Foreign Affairs whether the Egyptian Government have now stated their position in answer to the questions put in the recent Security Council debate.

Mr. Ormsby-Gore: No, Sir, but the Secretary-General is still in touch with the Egyptian Government about their replies to these questions.

Mr. Berwick: asked the Secretary of State for Foreign Affairs (1) what initiative has been taken and what resolutions have been proposed by Her Majesty's Government's representative at the Security Council of the United Nations calling for the application in the Suez Canal dispute of the six principles adapted by the United Nations Organisation last October; and what further steps; Her Majesty's Government propose to take in this regard;
(2) what representations have been made by Her Majesty's Government to the United States Government with regard to joint support, as allies, in the Security Council, of a Resolution calling for the application or enforcement of the six principles adopted by the United Nations last October in relation to a settlement of the Suez Canal dispute.

Mr. Ormsby-Gore: No Resolution on the lines suggested by the hon. Member was tabled by the United Kingdom representative on the Security Council, or is contemplated. Such Resolutions would no doubt be vetoed like the one we put forward last October.
I think it would be unwise to try to measure the results of these meetings in terms of resolutions. On 27th May my right hon. and learned Friend replied to Questions in the House on the results of the last Security Council discussion on 20th and 21st May. At this debate a number of pertinent questions were put to the Egyptian Government by the United Kingdom representative and others, with the full support of the United States representative who was in the chair. Since then the Secretary-General has: been, and remains, in touch with the Egyptian Government over these questions.

Mr. Beswick: Does the Minister really think that pertinent questions are enough? As this country, willingly or otherwise, did ultimately accept the Resolution of the United Nations, does not he think we could have salvaged some credit from this miserable business by putting up a better fight at the United Nations for insistence on the observance of these principles?

Mr. Ormsby-Gore: As I said in my original Answer, last October we tried in the latter part of the Resolution we sponsored to put into effect the six principles that were contained in the first half. That second half was vetoed and any attempt on this occasion to try to define what was meant by those six principles in a Resolution at the United Nations would again be vetoed, and I do not think it would have helped towards a solution of this problem.

Mr. Wade: Would the hon. Gentleman answer a part of this Question which he does not appear to have answered? What futher step do Her Majesty's Government propose to take, either on their own or in conjunction with the Government of the United States?

Mr. Ormsby-Gore: I think we must first await a report from the Secretary-General on his discussions with the Egyptian Government about their answers to the questions that were put.

Economic Survey of Europe (British Roads)

Mr. Janner: asked the Secretary of State for Foreign Affairs what steps have been taken to call the attention of the appropriate organ of the United Nations to the fact that that part of the Economic Survey of Europe produced by the Economic Commission of the United Nations which deals with British roads was entirely out of date at the time of publication and that its comments are accordingly of no material value; and whether arrangements can be made for a more up-to-date survey of British roads by that body at an early date.

Mr. Ian Harvey: As my right hon. Friend the Minister of Transport stated on 29th May in reply to Questions, the passage in the report dealing with British roads was out of date due to the report going to press early and thus failing to incorporate information subsequently

available to the Economic Commission for Europe Secretariat.
As the Inland Transport Committee of the Economic Commission for Europe publishes an annual bulletin of transport statistics, the next issue of which will contain more up-to-date information, it is not thought necessary to take any further action in the matter.
The Economic Commission for Europe Economic Survey of Europe is published on the responsibility of the Commission's Secretariat and clearly states that the views expressed in it should not be attributed to the Commission or to its member Governments.

Mr. Janner: In view of the very serious state of transport in this country in consequence of the roads not being properly available for the purpose of efficient transport, does not the hon. Gentleman think that an interim report might be introduced? If there cannot be an interim report can he give any idea when the annual publication will be made?

Mr. Harvey: These matters effect the policy of road transport, which is not the responsibility of the Foreign Office. As I have indicated in my reply, this is a report of an independent organisation for which Her Majesty's Government are not responsible.

Disarmament Sub-Committee

Mr. Brockway: asked the Secretary of State for Foreign Affairs if he will make a statement on the progress of the discussions at the four-Power Disarmament Commission.

Mr. A. Henderson: asked the Secretary of State for Foreign Affairs whether he will make a statement on the recent meetings of the United Nations Disarmament Sub-Committee.

Mr. Ormsby-Gore: My right hon. and learned Friend is well aware of the great interest of hon. Members in the disarmament discussions, and he is considering when he might make a statement with advantage to the House and to the progress of the negotiations.

Mr. Brockway: While appreciating that situation, may I ask if it is not a fact that these discussions have begun with more hope probably than at any


period of the meetings of this Sub-Committee? Can the right hon. Gentleman give an assurance that the British contribution to the discussions will seek the purpose of disarmament which all of us so intensely desire?

Mr. Ormsby-Gore: I can certainly give the hon. Member that undertaking.

Mr. Henderson: In view of the statement in The Times this morning, reporting that the Foreign Secretary at yesterday's meeting welcomed the Soviet proposal for a suspension of nuclear tests, are we to understand that the Government are now prepared to enter into an agreement for the suspension of nuclear tests?

Mr. Ormsby-Gore: I really do not think that in a Question and Answer of this kind we are going to make very much progress. I would beg the right hon. and learned Member to await a rather full statement by my right hon. and learned Friend. I think that to take small parts of the disarmament proposals, discuss them and be asked to comment on them in isolation is not very helpful.

China (Representation)

Mr. Rankin: asked the Secretary of State for Foreign Affairs if, in view of the decision to abandon the special Chinese embargo list, he will now instruct the British representative to move for the admission of the Chinese People's Republic into the United Nations.

Mr. Ormsby-Gore: No, Sir, our policy remains as it has been stated before. The question creates deep divisions of opinion in the United Nations and to press the matter at this stage would not necessarily be in the best interests of the Organisation.

Mr. Rankin: Did not the question of trading relations with China also create divisions in the United Nations? As the Government have decided to some extent to liberalise trading relations with China, would not it be a complementary action to try to do the same about political relations, in view of the fact that we ourselves de facto recognise the present Chinese Government?

Mr. Ormsby-Gore: No. I thought the hon. Member tried quite hard to relate the first half of his Question to the second

in his supplementary but did not succeed in doing so. The fact that we have abandoned some items in the Chinese embargo list does not bring about a situation in the United Nations which changes our position towards the membership of that organisation by the Chinese People's Government.

Mr. Bevan: As it was the policy of previous Governments and I understand is also the policy of this Government that Peking China should be a member of the United Nations, why do not we make the proposal and push it? The argument that there is a division of opinion in the United Nations is surely no justification for not taking the initiative in the matter.

Mr. Ormsby-Gore: If by taking the initiative one might do more harm than good, I should have thought that that was a very good reason for not taking it.

Mr. P. Noel-Baker: rose—

Mr. Speaker: I did not observe the right hon. Gentleman rise in time. I have already called the next Question.

Oral Answers to Questions — SUEZ CANAL (DAMAGE TO PROPERTY)

Sir F. Medlicott: asked the Secretary of State for Foreign Affairs the British estimate of the cost of the damage done to Egyptian property by the Anglo-French military intervention in the Suez Canal dispute in October and November, 1956.

Mr. Ormsby-Gore: Her Majesty's Government have made no estimate of the cost of the damage to Egyptian property resulting from the Allied intervention last year.

Sir F. Medlicott: Is my right hon. Friend aware that it has been stated in The Times that a reliable estimate of the total figure is £400 million? Can my right hon. Friend say whether any thought was given to this aspect of the matter before the enterprise was launched?

Mr. Ormsby-Gore: I do not know on what grounds my hon. Friend says that the figure that he mentioned is reliable. [HON. MEMBERS: "The Times."] Even if it comes from The Times I do not see on what grounds my hon. Friend says that


it is reliable. No figure has been put forward by the Egyptian Government. I would also say to him that he should also consider what would have been the cost to Egypt if we had not intervened.

Oral Answers to Questions — U.S.S.R.

B.B.C. Broadcasts (Jamming)

Mr. Osborne: asked the Secretary of State for Foreign Affairs if he will make a statement on the jamming by Soviet authorities of the British Broadcasting Corporation's broadcasts in Russian; and what representations he has made recently to have this practice ended.

Mr. Ian Harvey: Interference lessened last year between 18th April and 28th October. Then, during the Hungarian rising, jamming was resumed at full strength. It has remained intense ever since. My right hon. Friend the Prime Minister made representations, in his recent letter to Mr. Bulganin, about jamming and other Russian restrictions on freedom of information and travel. But the Soviet authorities show no signs at present of ending jamming.

Mr. Osborne: May I ask the Joint Under-Secretary of State two questions? Have the Russian authorities given Her Majesty's Government any indication why they are afraid of their people listening to B.B.C. broadcasts? Secondly, will my hon. Friend promise to persist in trying to get this jamming stopped?

Mr. Harvey: The answer to the first part of the supplementary question is "No", Sir. In fact, the Russians have on several occasions jammed their own leaders when speaking over the B.B.C.

Mr. Stokes: It is a pity we do not jam some of our own leaders.

Mr. Harvey: The answer to the second part of the question is "Yes" Sir.

Anglo-Soviet Cultural Relations

Mr. Osborne: asked the Secretary of State for Foreign Affairs if he will make a statement on Anglo-Soviet cultural relations and indicate what contacts have been resumed under the auspices of Her Majesty's Government since the breakdown consequent upon Soviet intervention in Hungary.

Mr. Ian Harvey: As my right hon. Friend the Prime Minister stated in his reply to Mr. Bulganin's message of 20th April, Her Majesty's Government favour an increase in Anglo-Soviet cultural exchanges organised through representative and responsible channels. A programme for the resumption of these exchanges, under the auspices of the Soviet Relations Committee of the British Council, is under discussion between that Committee and the Soviet Embassy.

Mr. Osborne: When these negotiations have produced results and relations are started again, will my hon. Friend insist that a Russian-language journal shall be published by our authorities in Moscow, the same as the Americans have, so that the Russians can see something of our way of life?

Mr. Harvey: That is an important suggestion which has been given very careful consideration. I hope that my hon. Friend will receive some information about it in the near future.

Oral Answers to Questions — AMERICAN TENANTS (INQUIRIES)

Mrs. L. Jeger: asked the Secretary of State for Foreign Affairs whether he is aware that United States service officers in this country are communicating with landlords who have, or have had, American citizens as tenants, and asking for private information about these tenants; and whether he will make representations to the United States Government in regard to this procedure.

Mr. Ian Harvey: My right hon. and learned Friend is grateful to the hon. Lady for raising this matter, which he is investigating. The inquiries made by the United States authorities are designed to check particulars given by persons who are being considered specifically for employment in the United States on matters affecting defence. These inquiries are openly made and those approached need not provide the information requested if they do not wish to do so.

Mrs. Jeger: Is the hon. Gentleman aware not only that my constituents find it distasteful to be asked this kind of question but that, from the point of view of American security, it surely is most inefficient to address a circular letter to a


landlord relating to a tenant who left his address seventeen years ago? Does not this suggest that a man's future might be determined purely by haphazard recollection, which is not only damaging to the individual concerned but is quite useless for United States security?

Mr. Harvey: As I have said, my right hon. and learned Friend is investigating this matter. I think that the hon. Lady will agree that we are not entirely responsible for the efficiency of this organisation.

Mr. Younger: is not it unusual that officials of any other country should make inquiries of this kind in the United Kingdom? Can the hon. Gentleman tell us whether officials of any other country are doing -t and whether the officials of our country have such facilities overseas? Is not it very unusual indeed?

Mr. Harvey: The nature of the operation is unusual and that is why my right hon. and learned Friend is making inquiries. I would emphasise that these American inquiries are only in connection with those who want to be employed in the United States on defence matters. However, my right hon. and learned Friend is looking into these matters and if a Question is put down a further statement will be made.

Oral Answers to Questions — BAGDAD PACT COUNCIL MEETING

Mr. Brockway: asked the Secretary of State for Foreign Affairs if he will make a statement on the recent conference of the Bagdad Pact Governments.

Mr. Ormsby-Gore: A full account of the Council meeting was contained in the communiqué issued at Karachi on 6th June. I will circulate the text in the OFFICIAL REPORT.

Mr. Brockway: Will the hon. Gentleman request his right hon. and learned Friend to consider the background situation in the Middle East now in relation to the Bagdad Pact and see whether there is not a great danger that we may identify ourselves with undemocratic Governments, which may be swept aside by dynamic popular movements and make a present of them to Soviet Russia and the Communists?

Mr. Ormsby-Gore: I do not think anything that has happened recently should change our policy of giving the fullest support to the Bagdad Pact, which is standing us in very good stead at the present time.

Mr. Bevan: Is not at least one desirable feature of the communiqué that more emphasis is being laid now on economic and technical co-operation and less upon the absurd assumption that the Pact has any military significance?

Mr. Ormsby-Gore: I thought the first part of that supplementary question was rather helpful. I did not much like the rest of it, but it is important that we should emphasise the economic side of this Pact.

Following is the communiqué

The Council of Ministers of the Bagdad Pact held its Third Session in Karachi from 3rd June to 6th June, 1957, under the chairmanship of Mr. Huseyn Shahecd Suhrawardy, Prime Minister of Pakistan.

2. The Session was attended by the Prime Ministers and Foreign Ministers of Iran, Iraq, Pakistan and Turkey and by the Secretary of State for Foreign Affairs of the United Kingdom. The United States of America was represented by a delegation of observers headed by the Honourable Loy W. Henderson, Deputy Under Secretary of State.

3. The Council noted with gratification the constant strengthening and the continuing progress of the Bagdad Pact Alliance. The Pact has emerged as a constructive force for regional co-operation and as an important element promoting world peace and security. Events have proved the soundness and solidarity of its moral basis. With its roots deep in the region, the Pact symbolises the spirit of association in equal partnership.

4. The Council noted with regret that some Governments have adopted an attitude of active opposition to collective security arrangements like the Bagdad Pact. which are in full accord with the Charter of the United Nations. The Council expressed its conviction that some of those who had criticised the Pact in the past were coming to recognise that it is not designed to harm the interests of any country. It is purely a defensive association of friends of equal standing, pledged to co-operate for their defence and security, and therefore to the advantage of the area as a whole. The Council, whose unanimous aim is to strengthen the Middle East against aggression and subversion, has no wish to see divisions or differences arising or persisting between Arab or Moslem countries. At the same time, they have no intention to press any country to join the Pact.

5. The Council was appreciative of the new spirit which has been generated by the Bagdad Pact among the Member countries It is


characterised by frank discussion, understanding of one another's point of view and co-operation in the common objective of peace and progress.

Political

6. The Council reviewed the international political situation, especially from the point of view of its repercussions on the Pact area.

7. The Council was of the opinion that, although the situation in the region of the Pact has shown improvement, the basic objectives of international Communism remain unchanged and the threat of direct and indirect aggression backed by massive and growing military potential against the security of Member Nations still exists. The Council agreed on the need for constant vigilance and for strengthening the ability of the member nations to meet and repel this threat. The Council expressed deep gratification for the purposes and principles of the American doctrine on the Middle East and for the assistance extended thereunder.

8. The Council devoted considerable time to a most helpful discussion of international situations in various parts of the world, with special emphasis on Eastern Europe, North Africa and South Asia and the Arab and Moslem countries of the Middle East. In particular, it examined those situations which have the potentials for developing in such a manner as to affect the security of the Pact area. The Council appreciated the importance of supporting the efforts made by the United Nations in promoting peaceful conditions in the area of the Bagdad Pact.

9. The Council recognised the necessity and great value to the members of the Pact of having readily available machinery for consultation on appropriate aspects of the international situation, in the form both of general appreciation and of advance consultation on current issues. To supplement the opportunities of such consultation provided by Ministerial meetings of the Council and by normal diplomatic channels, the Council decided that discussions should also be held in future at the Deputies level at appropriate intervals.

Economic

10. In considering the Third Report of the Economic Committee the Council noted with satisfaction the wide range of planning and achievement by this Committee. Approval has already been given for a number of projects designed to improve communications and to accelerate the development of the region. These include the linking of the Bagdad Pact capitals by telecommunications and the construction of roads and railways. For these projects the United States Government through the Richards Mission has made available the sum of $12,570,000.

11. Students from regional member countries are already studying at the nuclear centre established under the auspices of the Pact at Bagdad and the Council have delegated to the Deputies the consideration of the possibilities of offering vacancies to nationals of other states.

12. A far-reaching programme of other joint economic projects sponsored by regional members of the Pact is now under consideration by

experts and the United Kingdom Government have announced that they will provide £1,000,000 to enable a start to be made on some of them. The list of projects includes, in addition to those for improved communications:—

(a) establishment and co-ordinated use of national food reserves in the region;
(b) establishment of one or more centres for training in the use of agricultural machinery and methods of soil and water conservation; and
(c) establishment of an artificial insemination centre for Red Sindhi cattle in Pakistan.

13. The Council noted with deep appreciation that funds for technical assistance under the aegis of the Bagdad Pact have been made available by the United Kingdom (£1 million) and Pakistan (Rs. 500,000) and that a request by the Government of Turkey for the allocation of funds has been made to the Turkish Grand National Assembly. The programme of technical assistance already approved envisages the provision of scholarships and the services of experts including consultants and also equipment, for example, X-ray apparatus for static T.B. centres.

14. On the suggestion of the Economic Committee, the Council decided that a Working Party should meet in Bagdad at the end of September, 1947, to consider means whereby the national emergency services, like Red Crescent Societies, could be developed and coordinated through the Bagdad Pact to give more effective assistance to any country within the Pact region whch might require urgent relief in floods, epidemics and other calamities.

15. The Council is confident that the early and vigorous implementation of economic development programmes will contribute materially to the stability of the region and the well-being of its people.

Counter-Subversion

16. The Council considered the report of the Counter-Subversion Committee and recognised that the threat of subversion in the area inspired from outside continues to be serious. Efforts are being made to interfere in the internal affairs of Member countries and to undermine established law and order. The Council directed the Counter-Subversion Committee to continue with full vigour measures to safeguard the sovereignty and integrity of Member States against subversion.

Military

17. The Council welcomed the accession of the United States of America to the full membership of the Military Committee and recorded their deep appreciation of the United States' decision, which they were confident would further contribute towards the defence and security in the Pact region.

18. The Military Committee met from 3rd June to 5th June in Karachi and considered the progress to date. The Council noted with satisfaction that considerable progress has been achieved in the military field. The Council noted that the Committee have agreed on the nature of the threats against the Bagdad Pact area. The measures required in peace-time to improve the defence potential have been agreed


upon. In particular, the Council express their appreciation of the United Kingdom's offer to the regional Pact countries of a substantial contribution towards the infrastructure and training measures.

19. The Council approved of the setting up of a more comprehensive military planning structure.

Next Meeting of Council

20. The Council decided to hold its next meeting at the Ministerial level at Ankara on 20th January, 1958. Meanwhile, the Council will continue to meet regularly at the Deputies level.

Oral Answers to Questions — MIDDLE EAST

Soviet Note

Mr. Brockway: asked the Secretary of State for Foreign Affairs what reply has been sent to the Soviet Note of 19th April proposing a four-Power declaration condemning the use of force in the Middle East.

Mr. Ormsby-Gore: A reply was delivered to the Soviet Government on 11th June and was published on 12th June.

Mr. Brockway: Did not the reply indicate that a declaration was unnecessary because of the Charter of the United Nations? Are not there many cases where it has been advisable in a temporary situation to issue declarations? Would not it be very effective in the Middle East now if all the four Powers did declare that they would desist from force?

Mr. Ormsby-Gore: The hon. Member gave quite correctly the reasons we do not think it necessary to issue another declaration of this kind. Indeed, the issue of a declaration of this kind would rather look as if we did not put much store by our undertakings to the United Nations.

Mr. Younger: The declaration asked for in the original Soviet Note referred not only to what my hon. Friend the Member for Eton and Slough (Mr. Brockway) has referred to, but such matters as an arms embargo, which was not included in the Charter. Might not it have been a subject of comment in the reply—as I think it was not—that we would be prepared to engage in a general declaration about an arms embargo? In view of the fact that the Note contained this phrase:
Her Majesty's Government naturally agree that the problems of the Middle East cannot be settled by force.

would the hon. Gentleman be prepared to give the precise date when this blinding revelation flashed across the minds of Ministers?

Mr. Ormsby-Gore: As the right hon. Member knows, it has been discussed at considerable length in this House, if my memory serves me aright. In reply to the first part of the supplementary question, of course we should welcome any sign on the part of the Soviet Union that they would observe the same restraint in regard to arms sales to the Middle East that we have undertaken in the Tripartite Declaration.

Mr. Gower: Should not some distinction be drawn between the use of force to separate combatants in the Middle East and the use of force permanently to occupy territory in other parts of the world?

Government Policy

Mr. Zilliacus: asked the Secretary of State for Foreign Affairs to what extent, in view of the reference to the Middle East in the Prime Minister's reply to Prime Minister Bulganin, he is now prepared to abandon the policy of building up positions of strength in the Middle East in conjunction with the Americans, through the Bagdad Pact, and to substitute a policy of co-operation with the Union of Soviet Socialist Republics as well as the United States of America, for keeping the peace, controlling the traffic in arms, giving economic and technical aid and settling outstanding issues, on the basis of our common obligations as members of the United Nations.

Mr. Ormsby-Gore: Her Majesty's Govment have no intention of abandoning their policy of full support for the Bagdad Pact. In regard to the second part of the Question, Her Majesty's Govment are always ready, as members of the United Nations, to co-operate with any Government in genuine efforts to promote peace, stability, and prosperity in the Middle East or any other area.

Mr. Zilliacus: While thanking the right hon. Member for that reply, may I ask whether he believes that he can co-operate with the Soviet Union in the Middle East on the basis of the Bagdad Pact, which is an anti-Soviet alliance? Will not he


attempt to negotiate on the Soviet proposals for international control of arms traffic, international economic and technical aid and a joint keeping of the peace through the United Nations? Will not the Government take some initiative or reply to the Soviet initiative in this matter?

Mr. Ormsby-Gore: The Bagdad Pact is not an anti-Soviet Pact. It is a defensive alliance by certain countries in that area. As for the rest of the hon. Member's Question, he must not confuse some of the propaganda statements of the Soviet Union with what they are in fact doing in this part of the world and with what they have been doing over the past ten or eleven years. Governments of both parties in the House have frequently sought co-operation on precisely those matters which the hon. Member lists, and they have not had a very good response.

Mr. H. Morrison: Does the right hon. Member think that it was in accordance with the spirit of Mr. Bulganin's letter that the Soviet Union should supply three submarines to Egypt, which presumably have the purpose of intensifying the blockade against the progressive Government of Israel?

Mr. Ormsby-Gore: As I have already stated, I think that the sale of these submarines to Egypt runs entirely contrary to some of the statements made by Mr. Bulganin in his recent messages to the Prime Minister.

Oral Answers to Questions — COUNCIL OF EUROPE (FORESTRY)

Mr. Willey: asked the Secretary of State for Foreign Affairs what action the Committee of Ministers of the Council of Europe has taken regarding the recommendation of the Consultative Assembly about the forestry situation in Europe.

Mr. Ian Harvey: This recommendation is to be considered by the Ministers' Deputies in Strasbourg during their fifty-first meeting which begins on 27th June.

Oral Answers to Questions — ARMAMENT SALES

Mr. A. Henderson: asked the Secretary of State for Foreign Affairs whether, in view of the recent supply of armaments

to Egypt and Syria, he will state the present policy of Her Majesty's Government with regard to the international regulation of armament sales.

Mr. Ormsby-Gore: While it might be possible to include provisions for international regulation of armament sales under some far-reaching international disarmament agreement, we have not yet reached the stage when such a question could be usefully discussed in detail.

Mr. Henderson: Is not it a fact that on 2nd November the United Nations General Assembly passed a Resolution calling upon all Member States to refrain from sending armaments into the Middle East? Is that Resolution still operative and, if it is, is not it a breach of that Resolution to supply Egypt with submarines?

Mr. Ormsby-Gore: There is some doubt whether the Resolution of 2nd November is still in operation, but certainly it is entitrely against the spirit of that Resolution and indeed contrary to the protestations of the Soviet Government that they should send submarines to Egypt at the present time.

Mr. P. Noel-Baker: After the First World War, was not there an Arms Sales Convention which provided for licensing and publicity of all arms exports? Would not it be very useful to have such a Convention at the earliest possible date?

Mr. Ormsby-Gore: I know that the right hon. Gentleman is a great expert on these matters and I therefore do not dispute what he said. All I said in answer to his right hon. and learned Friend was that at this stage in the disarmament discussions I do not think we could fruitfully get involved in a discussion about the general sale of armaments all over the world.

Mr. Shinwell: In view of the sale of submarines to Egypt by the Soviet Union, has not there been an upset in the balance of arms in the Middle East? As Her Majesty's Government have always desired to maintain a proper balance in arms in the Middle East, will they now try to achieve that situation by providing Israel with the necessary arms?

Mr. Ormsby-Gore: I am bound to say that that question does not arise out of the Question on the Order Paper.

Oral Answers to Questions — FORMOSA AND THE PESCADORES

Mr. Zilliacus: asked the Secretary of State for Foreign Affairs to what extent Her Majesty's Government continue to regard as valid the recognition in the Cairo Declaration of 1943 and the Berlin Declaration of 1945 that Formosa and the Pescadores are Chinese territories forcibly separated from China by Japan, and the undertaking in these Declarations to restore these territories to China on the same footing as Manchuria, Quemoy, Matsu and other parts of China occupied at one time or another by Japan.

Mr. Ormsby-Gore: As the hon. Member was informed in reply to a Question on 30th January, 1956, the Cairo Declaration contained merely a statement of common purpose. That is still the view of Her Majesty's Government.

Mr. Zilliacus: Does not the Cairo Declaration state that we recognise Formosa as being part of the territory of China, taken from her by Japan, which we are pledged to restore? That is what the Declaration says, in so many words. What do we propose to do about it?

Mr. Ormsby-Gore: There is a difference of opinion among certain States in the world about who now represents the Government of China. This has become an international problem which cannot be solved by reference to the Cairo Declaration.

Oral Answers to Questions — BRITISH ARMY

Trooping the Colour

Mr. Emrys Hughes: asked the Secretary of State for War how many guardsmen fainted at the rehearsal for the Trooping the Colour ceremony on Horse Guards Parade on 3rd.Tune; and what was the cause.

The Secretary of State for War (Mr. John Hare): Thirty-five men fainted. Undoubtedly the main cause was the heat of the day.

Mr. Hughes: Does the Minister think that this is likely to stimulate recruiting? Does not he think that the time has come to prevent the humiliation of men whose photographs appeared next day in all

sorts of prone positions and whose names were given in the Press?

Mr. Hare: The hon. Member must realise that it was an exceptionally hot day. The temperature was 76 degrees and there was no wind at all.

Mr. Hughes: In view of the unsatisfactory nature of the reply, I beg to give notice that I shall raise the matter on the Adjournment at the earliest possible opportunity.

HOME GUARD (DISBANDMENT)

The Secretary of State for War (Mr. John Hare): With the permission of the House, Mr. Speaker, I would like to make a statement about the Home Guard.
The Government have decided, with the greatest reluctance, that at the present time we are no longer justified in maintaining the Home Guard and that its activities must cease on 31st July next.
I can assure the House that this decision was taken only after the most anxious consideration. Had a general war resulted at the time of the Korean emergency, when the Home Guard was reformed, that force would have formed an essential part of our defences and would. I am sure, have given an excellent account of itself. The advent of new weapons, however, and other developments have removed the necessity to maintain the Home Guard in being.
I should like to take this opportunity, on behalf of Her Majesty's Government, to thank all those who have so loyally given their services to this force. Their sacrifice of time and leisure has been in full accord with our long tradition of citizen soldiers. I can assure them that their efforts have been well worth while and that we all appreciate how much they have done.
This decision does not in any way affect the continued need for the development of the strength and efficiency of the Civil Defence Corps and I hope that any members of the Home Guard who wish to give voluntary service will transfer to that arm in the knowledge that there they will find full scope for their activities.

Mr. Strachey: It seems to be unnecessary and, indeed, cruel to say, "I told you so" too loudly on this occasion—

Mr. Osborne: Why say it?

Mr. Strachey: I said it would be cruel to say it too loudly. I think it necessary just to say it quietly, loudly enough for HANSARD.
We never did think that the establishment of the Home Guard in these circumstances was a wise move, and after great delay the Government have come round to our view on the subject. On the other hand, I join with the Secretary of State in paying our thanks, too, to the men and women who have been associated with the Home Guard and who have done their duty when asked, however mistakenly, by the Government.

Major Legge-Bourke: Can my right hon. Friend say what will be the saving both in the present year and in a full year?

Mr. Hare: The saving this year will be about £100,000, because the Home Guard has been on a cadre basis for some time, and in subsequent years about £50,000.

Mr. Shinwell: What has been the total expenditure since the inception of the Home Guard? Does the right hon. Gentleman recall the rather heated debates about this matter, when Her Majesty's Government kept the Opposition up all through the night and when, as a result, some of us were criticised by our hon. Friends for keeping them up? Does he recall the speeches made by the right hon. Gentleman the Member for Woodford (Sir W. Churchill), who insisted at the time that without the Home Guard this country would be in dire peril?

Mr. Hare: My right hon. Friend was correct. I am quite certain that at the time when the Home Guard was reformed, when our Army was all over the world, in 1951–52, there was a real need. If events had developed rather differently,

the Home Guard would have given a full account of itself. I shall be glad to give the right hon. Gentleman the figures for the full expenditure since the Home Guard was re-formed. I do not have the figures with me at the moment.
I know that there is a difference of opinion in the House about this matter. We are quite certain that the decision to re-form the Home Guard was right. I am grateful to the right hon. Gentleman the Member for Dundee, West (Mr. Strachey) for the tribute and thanks which he has paid to those who have served since the Home Guard was re-formed.

Sir I. Fraser: May we not all rejoice that the hazards and dangers which this force was calculated to help us to avoid have not occurred? To jeer because the trouble did not come is to overlook the sacrifice and service which these men have made.

Mr. Wigg: Is the Minister aware that he is not strictly correct when he says that the Home Guard was re-formed to deal with the Korean crisis? Is he not aware that some of his right hon. Friends advocated the re-establishment of the Home Guard long before Korea, 25th June, 1950? Is he not aware that the Home Guard Bill was introduced in 1952 as the result of faulty military appreciation in just the same way as the three-year engagement was introduced? Having scrapped the one, the right hon. Gentleman has taken the logical step of scrapping the second. I congratulate him.

Mr. Hare: The hon. Member should realise that he does not disagree with me when I say that the Home Guard was re-formed in 1952. At that time, the Korean crisis was in full cry and in those conditions the Government of the day took the decision they did, and very right they were.

Orders of the Day — FINANCE BILL

Considered in Committee. [Progress, 30th May.]

[Sir GORI)ON TOUCHE in the Chair.]

Clause 20.—(DEFINITION OF OVERSEAS TRADE CORPORATION.)

3.37 p.m.

Mr. Roy Jenkins: I beg to move, in page 15, line 1, to leave out "and the profits tax."
This Amendment brings us to Part IV of the Bill, which is certainly the most complicated and, in some ways, the most controversial part. The object of this and of some of the following Amendments is to restrict the concession granted to overseas trade corporations to Income Tax alone and not to extend it to Profits Tax also, as the Bill now does.
Inevitably, an Amendment as important as this—and this is an important Amendment—must raise the question of our whole attitude to Part IV of the Bill. I do not want to deploy that fully in moving this Amendment, because there will be later opportunities, particularly when we come to the Question, "That the Clause stand part of the Bill," to do precisely that.
Speaking for my right hon. and hon. Friends, the more we look at this Finance Bill the less we like Part IV and the more unjustified and economically dangerous we believe the concessions contained in Part IV to be. Some hon. Members opposite will no doubt be inclined to consider this and subsequent Amendments and our general attitude to this part of the Bill as a mean, narrow, rather spiteful attitude towards the problem of overseas trading by British companies. Hon. Members who take that view will be very mistaken and will also be doing much harm to their own cause and their own general attitude to the problem of taxation.
I believe that it is strongly and genuinely held on the benches opposite that the present level of taxation on both individuals and companies is too high for enterprise to be successfully fostered. I do not myself accept that view. It is, at the very least, a grossly exaggerated view, but I am sure that it is a view genuinely

held by many hon. Members opposite; it is a perfectly respectable view and an arguable view. But I consider that hon. Members opposite make a great mistake if they proceed from that premise to conclude that, because that is their general view, it is necessarily right for them to welcome the exemption of any particular class of taxpayers whether companies or individuals, from the general rate of taxation.
A concession of this sort, a large, sweeping and expensive concession, to overseas trading corporations does of itself nothing to lessen the amount of revenue which, in this year or in any other year, the Chancellor of the Exchequer needs to raise. Therefore, to the extent that exemptions of this kind are granted and the amount of revenue which is necessary remains constant and unaffected by the concessions, all that the granting of such concessions means is that some other people or companies will have to pay more tax than otherwise.

Viscount Hinchingbrooke: indicated dissent.

Mr. Jenkins: There is no doubt about that. The noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) shakes his head, but I am sure that I carry the Chancellor with me at least in this, that, if one has a situation in which the amount of revenue required is constant and not affected by concessions granted, there being no change one way or another, and if one in that position narrows the basis on which taxes are levied, one makes it inevitable that the rate of taxation remaining to fall upon individuals who do not benefit from the concession or exemption will be higher than would otherwise be the case.

Mr. Gerald Nabarro: Would the hon. Gentleman at once apply his mind to this simple proposition, that if the national income increases as a result of enlarged national productivity, should the rate of direct taxation remain constant, it surely should not then he necessary to raise those rates of taxation not applicable to overseas trade corporations?

Mr. Jenkins: Of course, there are arguments which we shall have to consider, as to whether or not this concession contained in Part IV will lead to an expansion of the United Kingdom national


income at a greater rate than would take place if the concession were not made. I should have thought that there were very powerful arguments to be adduced on the other side, to suggest that to give an incentive to overseas investment as opposed to home investment would be very likely to have precisely the reverse effect. It may well be that, as a result of what is being done, the rate of increase in our national income, with which we all, of course, are vitally concerned, would be less rapid than would otherwise be the case.
There are arguments on both sides, and if the hon. Member for Kidderminster (Mr. Nabarro) would detach himself for a moment from those considerations, and not make an assumption, either one way or the other, about what is likely to happen to the rate of growth in the national income as a result of this concession, he will, I think, agree that to narrow the basis of taxation, there being a given amount of revenue required, inevitably means that the people who do not benefit from the concession will be taxed more heavily than would otherwise be the case.

3.45 p.m.

Mr. Nabarro: No.

Mr. Jenkins: There are many people who consider our taxation problems rather more seriously than the hon. Member for Kidderminster and the noble Lord the Member for Dorset, South, and who are already worried about the eroding of the tax base in this country. There are grave dangers in having very high nominal rates of taxation erected upon a comparatively narrow tax base, so that one has a position in which individuals and companies, if they happen to form part of that narrow tax base, are very heavily taxed indeed, whereas, if they happen not to form part of it, they may be very much more lightly taxed or get off very much more readily than others in roughly a comparable situation.
There are extremely important principles of equity in our tax tradition which we must consider. It is highly desirable that the tax burden which an individual or company has to meet should be related much more to ability to pay or meet the burden than to the chance of whether or not that individual

or company will happen to fall inside or outside the dividing line of a particular concession. The more concessions of this sort that we have the more we make a company's tax liability depend not upon its ability to pay, but upon the chance of whether it happens to be on the right or the wrong side of a particular concession.
Without doubt, this point was put extremely forcibly by the Report of the Royal Commission on Income Tax, not the last Royal Commission, but the Colwyn Commission, which reported as long ago as 1920. That Commission said:
While we should be very reluctant to recommend the continuance of any provision which would in any way prejudice the conduct and extent of our foreign trade, we cannot recommend that a burden should be lifted from any particular class of taxpayer unless we are satisfied that the effect of that relief, considered in conjunction with the heavier burden consequently to be placed upon all the remaining taxpayers, will result in a fairer distribution of the total burden to be borne.
That Royal Commission, which was certainly not packed with Socialist nominees, and which probably devoted a little more thought to the matter than the hon. Member for Kidderminster has yet been able to do, clearly took a point of view about this problem very much more in accordance with that which I am advancing than that which the hon. Gentleman was disposed to accept earlier. This is something which we must all have in the forefront of our minds. The traditions of equity in the British tax system are extremely important, and it is vital that, if we are to undermine them in any way, we should be absolutely convinced that there is an overwhelming economic case for so doing.
I hope that hon. Gentlemen, in considering our approach on this side of the Committee to this and to subsequent Amendments which we shall move, will recognise that the fact that we accept that there is need to raise a given amount of revenue and desire to preserve fairness in our tax system does not of itself make us vindictive towards the companies which might otherwise benefit from this concession or, indeed, indifferent to the problems which they have to face in trading overseas.
Certainly, it seems to me that, whatever may be the case—and we shall have to argue this later in subsequent debates—for granting overseas trade corporations


exemption from United Kingdom Income Tax, there is really no case at all for going further and giving them the additional concession of exemption from Profits Tax, also.
After all, this view that there was no case for exemption from Profits Tax was the view of the Royal Commission, not the Royal Commission of 1920, this time, but the Radcliffe Commission, which reported recently, the recommendations of which on this and other points we all have to come extent in mind when we are considering these taxation problems.
The Radcliffe Commission brought forward a recommendation in favour of an exemption from Income Tax, a recommendation on which, I understand, the Government are basing a large part of their case in bringing forward Part IV of this Bill. There was rather grave difficulty within the Royal Commission in getting a majority of the members to go so far even as this. The position is quite clear from its Report, and it is that what we may call the normal majority of the Commission—the majority who normally supported the main proposals, as opposed to the fairly small minority—were not a majority for this particular purpose. As a result, the whole argument of the Commission dealing with this particular problem of overseas trading profits is presented in a rather unusual, and I would say slightly confusing, form.
Eventually, we get the position in which the Commission is able to say that it can make some recommendations on what it calls "this difficult problem," and what the Commission actually says is:
We have decided to base our recommendation on a scheme of this kind because it is the one that would receive the largest measure of support among the signatories to this Report, of whom some would not be ready to recommend a more comprehensive measure.
It was not very enthusiastic language to begin with. This, let us remember, was a recommendation for a scheme for exemption from Income Tax, but not for exemption from Profits Tax. It is absolutely clear from the words which the Royal Commission used that the Chancellor's scheme giving exemption not merely from Income Tax but from Profits Tax as well would not have commanded the support of the majority of the Royal Commission.
Therefore, the Chancellor is giving a concession to overseas trade corporations which the Royal Commission, not a notably radical body in most of its recommendations, would not have been willing to support, because it thought it went much too far on all sorts of grounds. I should not like us to consider this point or, indeed, any other point solely in terms of what the Royal Commission said or did not say.

Viscount Hinchingbrooke: Hear, hear.

Mr. Jenkins: We have to consider this and every other question on its own merits and say what we ourselves think about it. Precisely because of that, I am glad that I carry the noble Lord the Member for Dorset, South with me in this rather controversial problem. When Royal Commissions and committees of inquiry are set up, I like to see rather controversial people upon them, so that we can get clear-cut reports—if necessary, majority and minority reports—to enable us in this House to make up our minds about them on the basis of conflicting views and evidence. Certainly, I would not wish to shelter behind the Royal Commission. I merely wish to prevent the Chancellor from sheltering behind the Royal Commission, because he has gone very much further than the Royal Commission was prepared to recommend.
Let us now consider the concession on its merits and see what is the case for extending it from Income Tax to the Profits Tax. As I understand the Government's case, it is that this concession is to be one specifically designed to benefit companies as companies, and not shareholders. I am not sure myself that this is a very meaningful distinction, but it is a distinction of which the Financial Secretary to the Treasury certainly attempted to make a great deal in his Second Reading speech. He devoted an important and powerfully argued passage of that speech to saying that this was a concession which was solely designed to improve the reserve position of companies and their investment opportunities, and which was hedged round in such a way that there would be no special benefit accruing at any rate to United Kingdom shareholders of these companies.
But the Profits Tax concession runs directly counter to that point of view and to the view that the concession as a whole


should benefit primarily and overwhelmingly companies considered as corporate entities and not the financial position of individual shareholders within those companies. The fact that there is exemption from Profits Tax gives investors in the overseas trade companies an enormous advantage as against investors in a home company. It gives an advantage in two ways. Of course, whatever the Financial Secretary may say, the investor is a great deal better off, however we draw this concession. Even if we did apply Profits Tax to overseas trade corporations, and merely gave exemption to Income Tax, the investor will be better off. Although we charge him Income Tax on his dividends when they are distributed, none the less the earning capacity of companies is inevitably much greater than it would be if the income tax concession did not apply.

Mr. John Tilney: Surely that is not true of many areas, especially in West Africa, where Income Tax is higher than it is here, and where at present one can offset Profits Tax against the higher rate of Income Tax? As far as I can see, the argument of the hon. Gentleman would put certain companies trading in these areas in a worse situation than they are in at present.

Mr. Jenkins: I think probably only to the extent that they have been distributing——[HON. MEMBERS: "No."] Let us Consider that point a little further. What I am prepared to say finally in reply to the hon. Member is that in cases where the overseas rate of Income Tax, and where also there is no rate of Profits Tax in the overseas territory concerned, is higher than in the United Kingdom, then there may be a case for giving a special exemption from Profits Tax, but in the great majority of cases that does not apply, and the Income Tax is substantially lower than that charged in the United Kingdom.

Mr. Peter Remnant: Not in India.

Mr. Jenkins: Hon. Members cannot have it not only both ways, but three ways, as far as I can see at the moment. The basis of the approach of hon. Members opposite to the whole basis of taxation, and, secondly, to the particular problem of overseas trade corporations, is that we are so grossly overtaxed

in this country that our companies resident here cannot compete for this reason alone.
We cannot have a position in which, first, we are told this, and then, when a concession is put forward to meet it, one hon. Member after another pops up and raises the question of one country after another, trying to create a position in which one would begin to think that we were one of the lowest taxed countries in the world. There should be some unanimity of opinion among hon. Members opposite as to the problem with which we are dealing. Is the problem with which we are dealing that we are taxed too highly in this country or that we are taxed too low? Clearly, if the latter is the view of the hon. Member for Wokingham (Mr. Remnant) and some of his hon. Friends, we ought to have an entirely different approach from that contained in the Bill.
I want to come back to the methods by which the Profits Tax concession benefits the shareholder as the recipient of dividends, rather than the company as such. Of course, any taxation concession to a company, whatever are the provisions about distribution, to some extent benefits the individual shareholder, because the tax concession, even if fully confined to reserve profits, necessarily increases the ability of the company to build up its earning capacity at a faster rate than a company which did not have the concession. That is a proposition which I find it difficult to believe any hon. Members opposite will dispute. We are at least agreed on this particular proposition.

Mr. Nabarro: Right for the first time.

Mr. Jenkins: It follows from that that the ability of a company whose earning capacity is growing more quickly to distribute gross dividends is greater than that of a company the earning capacity of which is not so great. Therefore, any form of tax concession of this sort, however hedged round with anti-distribution provisions, is necessarily and inevitably a cash benefit to the individual shareholders. We are agreed on that.
4.0 p.m.
The Profits Tax concession, however, substantially further increases the benefit, because if we give the Income Tax concession to companies we can then say that when a distribution is made the Income Tax which would not be chargeable had


the profits not been distributed becomes chargeable. This cannot be done with Profits Tax. Profits Tax, once it is remitted, is remitted once and for all and. as far as I am aware, cannot be clawed back by any conceivable accountancy device front the individual shareholder.
Furthermore, of course, Profits Tax, as it exists at the moment, on a highly differential basis, is very light—comparatively light—on undistributed profits and comparatively heavy on distributed profits. Therefore, to the extent that we say that overseas trade corporations or any other category of companies should be exempted from Profits Tax, we are giving a concession which is in itself of the more value to companies the more they distribute.
Therefore, there is in a sense a curious contradiction in the middle of this legislation. So far as the Income Tax provision is concerned, there is an enormous incentive against distribution. So far as the Profits Tax part of it is concerned, there is in a sense an incentive working the other way. The concession is bigger the greater the distribution which the company undertakes. This, therefore, cuts across a great deal of the Government's argument. There is no doubt that independently of what we think of the concession generally, the Government would be well advised to accept this limitation to the concession.
I should like the Chancellor, if he replies to the Amendment, to tell us exactly how much of the £35 million, which in a full year he says that this concession would cost, would be saved were the Profits Tax part of it to be removed. I should say at this stage, although only in passing, that we on this side, with a good deal of evidence to support us, some of it coming from official quarters, are very sceptical indeed about the estimate of £35 million as being the total cost of this concession and believe that it may well turn out to be substantially greater.
Assuming, however, for the moment that the £35 million is the correct maximum figure in a full year, there can, I think, be no doubt that the withdrawal of the Profits Tax part of the concession would mean a saving of some appreciable part of this £35 million. And savings, let us remember, in this whole sector covered by Part IV of the Bill, are

savings not only to the Exchequer and to the revenue but are also savings to our balance of payments and our foreign exchange position.
Looking back this morning, I was interested in the words used by the present Prime Minister when discussing a concession along these lines in our Finance Bill debates last year. Explaining why he could not then undertake such a concession, the Prime Minister, speaking as Chancellor of the Exchequer, said:
I have to look at the background, because not only would it involve very big Budgetary losses, but it would have a very considerable effect on the balance of payments. So we have a double pressure on us. I am not making these points as objections, but am stating them as facts. Something involving that amount of money, regarded both from the Budgetary and balance of payments point of view, is not lightly entered into"—[OFFICIAL REPORT, 19th June. 1956; Vol. 554, c. 1265.]
At this point in our economic affairs, in this year 1957, speaking in the last week of June, which is sometimes traditionally a period when our balance of payments difficulties begin to get rather greater than they have previously been, and considering all the figures which he has before him relating both to our balance of payments position and to our gold position, is the Chancellor of the Exchequer so confident that the position which confronts us in this respect this year is so different and so much better than that which confronted his predecessor a year ago that he can reject an offer of a saving not merely to the Budget, but also to the balance of payments and to the security of our position over the next few months?
In going through with this full concession and with the dangers which it involves, any Chancellor of the Exchequer should be extremely confident that the balance of payment outlook, at least over the difficult autumn months, is fairly secure. If the Chancellor can tell us that he is so confident that he regards the position as markedly different in this respect from that which faced the present Prime Minister a year ago, and that he can feel the confidence which the present Prime Minister could not then feel, that would be a great reassurance to us all and to the country, and, perhaps, to people outside the country.
If, however, the Chancellor has any doubt about the prospect, both for our


trade figures and for the gold reserves over the next few months, he ought to be very doubtful indeed about rejecting this offer from this side of the Committee, which would make things slightly easier for him and for our national finances.
I have no doubt whatever that on this basis this part of the concession is unjustified. It is not necessary, as we shall argue later, to put our overseas trading companies in a position of being able to compete on less favourable terms with those of most other countries. It is giving them an excessively advantageous position as compared with United Kingdom companies trading at home. It is favouring their shareholders, it is opening a big gap so far as the revenue is concerned and it is leaving us open to a substantial danger in our balance of payments.

The Economic Secretary to the Treasury (Mr. Nigel Birch): The hon. Member for Stechford (Mr. Roy Jenkins) went rather wide when speaking on the Amendment. He made some interesting remarks about the composition of Royal Commissions and our general financial position, but I hope he will acquit me of discourtesy if I do not follow him into all that but confine my answer, at least at this stage, to the substance of the Amendment, which deals only with the Profits Tax. The wider issues were fully discussed in the Budget debates and on the Second Reading of the Finance Bill.
The hon. Member, very naturally, asked what would be the saving if the Amendment was accepted. It is not an easy estimate to make, but the best estimate that we can make is that the Profits Tax accounts for about one-fifth of the cost of the concession.
The hon. Member also referred to the Royal Commission and, I think, to paragraph 691 of its Report, in which the question of whether Profits Tax should or should not be included is discussed. It is true that the Royal Commission decided against Profits Tax being included in this concession, but there is a substantial gloss upon that in that in paragraph 691 it is quite clear that the Royal Commission was assuming that another of its recommendations would be accepted. The other recommendation was that the rates of Profits Tax on distributed and undistributed

profits should be equalised. The Royal Commission used the words "at a single undifferentiated rate".

Mr. Gordon Walker: The Royal Commission also said that Profits Tax should be charged "as hitherto", which must mean that it must be charged as it is charged now. It used the words "as hitherto".

Mr. Birch: If the right hon. Gentleman reads the paragraph with care, I think he will find in it what I have said. He will certainly find the words "at a single undifferentiated rate", which seems to be a fairly clear statement.
When considering this matter, it is important to look back and see what is the main object of this provision about overseas trading corporations. The main object was to remove the disadvantages suffered by companies resident in this country in building up their reserves abroad owing to the high taxation in this country. Profits Tax, by its nature, cannot be a tax which is passed on to the shareholders and it is, therefore, a tax upon the reserves of the company. It appears to us that if the object is to assist companies in building up reserves it is not very logical to place upon those reserves a tax which can be paid only from that same place.

Mr. Roy Jenkins: In arguing that Profits Tax, whether nominally on distributed or undistributed profits, always falls upon the reserves, why does the right hon. Gentleman tell us he attaches so much force to his understanding that the Royal Commission based its opposition to including Profits Tax solely on the ground that there would be then an undifferentiated Profits Tax? It is a little difficult, in those circumstances, to see what difference it would make.

Mr. Birch: I was only pointing out, in answer to the suggestion that the Royal Commission came out flat against it, that it put a gloss upon what it said.

Mr. Jenkins: What difference would it make?

Mr. Birch: Of course it makes a difference.
The tax principle on which this is based—

Mr. Jenkins: I hope that the right hon. Gentleman will not leave this matter yet. He usually attempts to answer our arguments extremely fully, applying himself closely to them. This is of great significance. If, as the right hon. Gentleman says—we would not necessarily accept it as correct, but as he himself thinks—the Royal Commission was decisively influenced by the belief that an entirely different recommendation it made would be accepted, it is important to know whether that entirely different recommendation would make any change of principle. For myself, and going by the right hon. Gentleman's own showing, I fail entirely to see what difference it would make.

Mr. Birch: Profits Tax on distributed profits is 30 per cent. If there were an undifferentiated Profits Tax rising to about the same amount—I cannot remember exactly, but I think it would be about 11 per cent.: clearly. there is a difference between 11 per cent. and 30 per cent., is there not?—it would make a very great difference on any amount of distributed profits how much charge came upon the reserves. It is really no more complicated than that.

Mr. Jenkins: I am sorry to continue to press the right hon. Gentleman, but he must agree that this is a most important point, because he raised it first in his speech.
The whole basis on which the 11 per cent. is calculated is that it would produce the same amount of revenue as a tax of 30 per cent. on distributed profits and one on undistributed profits of 3 per cent., a combination of the two. Therefore, the total weight of tax would be the same.
If the right hon. Gentleman's case is—and he made it very clearly, but it is a clearly arguable one—that Profits Tax, whether on undistributed or distributed profits, always, in effect, falls on the reserves, what possible difference does it make from this point of view whether one pays one tax of 30 per cent. and another of 3 per cent., on the one hand, or one tax at 11 per cent., on the other? Surely, all three fall on the reserves and have exactly the same effect on the competitive position of the company and its possibilities of growth.

Mr. Birch: It makes a great deal of difference, depending on how much the firm distributes. Considering the position of individual firms, there is certainly a difference. All I said about the Royal Commission was that it came out against exempting Profits Tax and I also said that there was a gloss upon this, because it was looking upon the Profits Tax set-up in a different way from that in which it now is.
The position in which O.T.C.s are placed is this. Profits are taxable in the countries where they are made. If a company is resident here the tax here is on profits distributed. For that reason, there does not seem to be any logical distinction here between exempting them from Income Tax and exempting them from Profits Tax.
The point which the hon. Gentleman did not make, and which is by far the most important in this argument, is this, that as well as enabling companies to build up reserves on profits earned abroad, the primary motive in bringing this provision in was to lessen the handicap under which a company registered here suffers when competing with a company registered overseas. A company registered overseas is not subject to Profits Tax. All we are doing here is to put an O.T.C. somewhere near the position of a company registered overseas.

4.15 p.m.

Mr. Gordon Walker: Is the right hon. Gentleman referring to a United Kingdom company registered overseas or to foreign companies? Is he referring to an American or a Belgian company?

Mr. Birch: Neither of them would pay Profits Tax.

Mr. Gordon Walker: That would depend.

Mr. Birch: They do not.
The object is to enable the O.T.C.s to compete successfully abroad against companies registered abroad, and that is a part of the advantage which we seek to gain by setting up this structure. If they were made subject to Profits Tax they would lose. That, I believe, is the basic reason why it is right that these companies should be exempt from Profits Tax.

Mr. Donald Chapman: I was very interested in the arguments of the Economic Secretary, but he did not apply himself at all to the main argument of my hon. Friend the Member for Stechford (Mr. Roy Jenkins), namely, the argument about equity, which, of course, runs right through the whole of the Report of the Radcliffe Commission. It is even more strongly set out in the evidence submitted to the Royal Commission by the Inland Revenue.
The right hon. Gentleman seemed to dismiss the arguments on equity completely, and then to say that, having dismissed them, it did not matter how wide a breach we made in the arguments on equity. I think that that is where the difference arises between the two sides of the Committee. We on this side—a number of us, at any rate—who originally approached Part IV of the Bill with some apprehension—I would not put it more strongly than that—have, I think, become very concerned indeed, and even hostile to it, the more we have read the evidence, particularly on matters such as equity, of the Inland Revenue to the Royal Commission, and, indeed, the arguments of the Royal Commission itself. The Economic Secretary was a little too quick in dismissing those arguments. He was a little too eager not to deal with them at all.
As my hon. Friend said, we on this side do not feel particularly vindictive against these companies. This is not an ordinary party issue, and we are not trying to score against private enterprise. I think that most of us who have looked into this very carefully have come to the view that it is because the balance of arguments is against these concessions in the Bill, it is because of the very grave disadvantages in them, and certainly not because of any first principles, that we have utterly to oppose them.
It is to that balance of argument I want to direct the right hon. Gentleman's attention. My hon. Friend the Member for Stechford mentioned what was said by the Royal Commission of 1920 about equity. I think those arguments have been stated equally forcefully in the evidence of the Inland Revenue to the Radcliffe Commission. Some of the evidence is very strong, and I want to quote two passages from it. The Inland Revenue, in making general comments, said this:

Income Tax is a tax on income and the criterion of liability should be simply the existence of income; the nature of the income is irrelevant. There should be no discrimination for or against particular classes of taxpayer or particular classes of income. Liability in other words should depend on ability to pay as measured by total income. There are, of course, departures from this principle, but they are not of great importance.
This is important. This is what is enshrined in our tax law as it exists today, that income is income and has to be taxed as income. This applies to Profits Tax and Income Tax alike.
Even more strongly, a second quotation from the evidence given by the Inland Revenue says:
Equity and efficient administration alike require that profits should be taxed simply as profits, without regard to extraneous considerations; and that the amount of the tax liability should be determined solely by the amount of profits…The Board submit that the introduction of special taxation favours for selected classes of traders would destroy one of the main pillars of the Income Tax system.
Those are very strong words indeed, and the Economic Secretary did not consider any of them at all. He merely took it that these matters are more or less not of great moment and certainly hardly disputed between the two sides of the Committee. He proceeded to widen the breach with equity as much as he could without caring for the consequence.
If the Government have come to regard a breach with equity in these matters as to some extent inevitable, and I admit that there are strong arguments about this, why should we not limit is as strictly as possible to Income Tax and certainly not go further and give relief on Profits Tax as well? The main argument was put by my hon. Friend the Member for Stechford that the main effect of the Government's proposal is to give a bonus to private shareholders, who have more dividends when it comes to distribution because the profits have not been subject to Profits Tax.
But let us look at it in equity as between a company operating at home and a company operating abroad. Not only are we breaking the rules of equity in a general sense as between a company operating at home and one operating abroad, based on distinction of markets very largely, but we are going one stage further and saying that something we impose reluctantly on profits made at


home—undistributed Profits Tax—is now to be taken off the company operating abroad. I believe that that is going very much further, not only exempting them from general taxation but allowing them to get off scot-free from something that we do reluctantly to home companies.
Looking at the matter in another way, one of my quarrels with the whole of Part IV is that in attempting to meet reasonably legitimate cases of pioneer companies and companies operating public utilities in foreign countries—arguments about which are very carefully set out in the Royal Commission's Report—the Government have been bound willy-nilly to draft the Bill in such a form that even a company which is simply exporting goods from this country will have to come within the concession.
In other words, if any company cares to form a subsidiary to sell its exports abroad it can register as an overseas trade corporation and to that extent can come within the tax concession. That goes very much wider than the legitimate cases to provide for which was the prime purpose in drafting the Clause. Companies which will be merely exporting—and I do not say "merely" in a derogatory sense—will have assistance which we on this side of the Committee are very doubtful about. This assistance will be given to them and not only to legitimate companies which are building their reserves abroad.
If there was a balance of argument, we on this side of the Committee would be in favour of companies operating public utilities or pioneering abroad receiving the concession, but not only are they to receive it but companies merely exporting goods are also to have this exemption from Profits Tax. If we relate that to the principles of equity, and to the many doubts raised in the Royal Commission's Report and in the Inland Revenue evidence, it is taking the whole matter very much further than anybody envisaged when the idea of this concession was first mooted. This is a loophole which has inevitably appeared and I am surprised that the Government should not be anxious to narrow the loop-hope by at least exempting Profits Tax from the concession. That, at least, would ameliorate a bad thing that the Bill does.
The Economic Secretary's reply was not really satisfactory. He glossed over and

did not even deal with the principles at stake in a big departure like this in our tax law. When the right hon. Gentleman made assumptions about a breach of principles he more or less declared that it did not matter how wide was the breach. We on this side of the Committee will certainly feel bound to oppose this proposal because we believe that with Income Tax alone it was too much of a breach and that the inclusion of Profits Tax as well is quit indefensible.

Mr. Leslie Hale: I was very glad to see the Solicitor-General on the Front Bench opposite if only for a moment or two, because we have had so many of these complicated matters discussed in the absence of any legal advice. I am glad, also, to see the Lord Advocate present, because when we are discussing this extremely difficult and complicated matter I hope that we shall have the advantage of legal advice. We have not seen the Attorney-General present at all since our debates on the Finance Bill started. I would recall the well-known maxim Nullum tempus occurrit regi, or in the Institutes version, Nullum tempus aut locus occurrit regi, and I wonder whether the Attorney-General has been so deceived by the obvious onomatopoesis of the concluding word into a mistranslation to mean that time and place does not matter to an Attorney-General.
I apologise for repeating myself, but I have listened to the arguments with earnest and sincere attention and I am bound to recall the position of the High Court judge who heard a Chancery appeal at a time when the Queen's Bench had a good deal of contempt for the intricacies of Chancery procedure. After listening both to counsel and to two senior judges, he said, "I have listened with the most earnest attention to the eloquent and lucid arguments of able counsel on either side without understanding them in the least. I have also listened, my Lords, to your most brilliant judgment with, I fear, no better result. I therefore agree with your lordships for the same reasons."
I should have liked to have contented myself with the same comment, but it is obvious here that the orators do not agree. My hon. Friend the Member for Stechford (Mr. Roy Jenkins) made an able attack on the Clause and it seemed to me that the Economic Secretary made


no effective reply at all. The right hon. Gentleman has left many matters open for consideration.
4.30 p.m.
Could I, as an old-fashioned individual, ask that we should abolish the rather wretched use of initials when we discuss matters? In my days an O.T.C. was an Officers' Training Corps, and I prefer to refer to overseas trade corporations in the course of this debate to prevent any difficulties arising.
I hope that my hon. Friend the Member for Northfield (Mr. Chapman) will forgive me if I say that I do not feel in the least vindictive about private enterprise or about party issues. I do not regard politics as a matter for vindictiveness, but I feel we ought to have a careful look at private enterprise in the course of this discussion, and find out what we are really discussing when we talk about trade corporations and the sale of goods, in order to discover if we are really referring to companies which sell goods.
Let us, first, remember in discussing this matter that many of these corporations have been entitled to huge grants from the Government to enable them to carry out their operations in Colonial Territories. A great many of them have had large sums by way of assistance from Government funds. Some of them have had those sums written off, or, at any rate, treated as a debt that they will never be called upon to repay. There may well be something highly immoral in giving tax concessions to companies which have already had great financial benefits and assistance from the public purse.
In point of fact, the Chancellor of the Exchequer has been performing a sort of financial striptease in this matter. Every now and then in the various Clauses he exposes for a minute a slightly obscene portion of the financial body politic. I do not know what the United States Supreme Court would say, but it would probably think that he had brought a blush to the cheek of Dr. Kinsey. But the moment the probing eyes of my hon. Friends are directed to these matters the seventh veil is restored and the rules of order, or the way in which the Clause is drafted, prevent our probing as much as we should.
I desire, on this matter, to call the attention of the Committee to the kind of company that may benefit in this manner, and that will take me on a long journey to the City of Sao Paulo, in Brazil. The City of Sao Paulo is also a company registered in the City of London, which has an address in Broad Street, E.C., and a capital of £2¼ million of authorised capital and £300,000 of issued capital, but the real City of Sao Paulo is a more or less modern creation. It was founded by two Franciscan monks in 1544. It rested for centuries on the Pananemo River and, indeed, upon the Tropic of Capricorn, and it looks upon the tranquil, blue waters of the Atlantic which are also part of the 4,000 mile rocket area agreed in the Treaty of July, 1956, between England and America for the defence of ourselves against Russian attack.
The City of Sao Paulo is no longer a place where the gauchos, in sombreros, with their black-eyed senoritas on their arms, disport themselves in sylvan solitudes. It is now a town of 2 million people and, according to the guide book, bears a remarkable resemblance to Chicago—though why anyone should want to build another Chicago somewhere else is a matter I find difficult to understand.
The City of Sao Paulo Investment Company acquired, in 1911, by some means, 135 acres of land in the City of Sao Paulo. On the strength of those 135 acres it formed a company in Great Britain—which is directly relevant to the Clause, Sir Gordon. I observe an air of anxiety on your face, but I have the authority of the financial pundits for the observations I am making. Shares were issued. The operation it was conducting was not the sale of goods. It was not what you or I, Sir Gordon, would have called a trading corporation, but it is what the Chancellor calls a trading corporation in this and in the succeeding Clause.
Indeed, the advice of the great financial experts in the City is to that effect, and there have been fluctuations of shares based upon this information. The shares, which were of 2s. 6d. nominal value and of which there was an issue in 1947 at 6s. 3d., were resting rather gently with no dealings, or not much, at about 12s. 6d. at the time of the financial statement. When, however, the obvious possibilities


of this Clause came to the notice of the City, they waltzed up to about 14s. 9d., which is a fairly tolerable price for a 2s. 6d. share.
It is interesting to note what the articles of association provide for the company to do. This is a trading corporation owning 135 acres of the City of Sao Paulo, and it holds on to them unless it gets a very good price offered. If it gets a very attractive price, it sells a bit of land and buys some more. It buys some more through the subsidiary company, which is registered in Brazil and which is entitled, without the approval of a resolution in special meeting, to invest up to a total of 25 million cruzeiros in the purchase of land or property in Sao Paulo.
This, so far as I am aware, is all it does, but mark what happens, Sir Gordon. The news comes to the City—incidentally, under the present system the benefit of all this news goes at once to a few "wide guys" in the City. Bidding goes up. The little curate who invested in Sao Paulo in 1911 knows nothing about it. He loses whatever profit is to come. That all goes to the people who bid up, sell and buy the shares on a quick profit basis.
The paper that has come to my hand called the New Statesmen and Nation dated 8th June, 1957, and which now runs a financial column next to what is a very good chess column, says this:
There is a fresh, interesting tang about the bid for City of San Paulo. The subject is hackneyed—a flourishing company in South America which currency restrictions and the odd behaviour of exchange rates have made something of a wash-out for its British shareholders"—
Surely the Economic Secretary will appreciate that the economic editor of the New Statesmen and Nation talks in rather more mundane language than he or I would talk, but I am quoting—
The bid has been put forward by a London merchant bank on behalf of a new Panamanian company called Deltec Investment, backed by a number of U.S. financial interests who have already demonstrated their talent for exploiting this kind of situation. Its terms are not particularly unusual—stockholders are offered either the next best thing to cash, a debenture repayable at a premium within five years, or a mixture of long-term debenture and shares in the bidding company. The tang is provided by Mr. Thorneycroft's Finance Bill. City of San Paulo will qualify without difficulty as an overseas trading corporation. Not only will it be exempt from U.K. tax on its trading income

except when distributed, bin overseas shareholders will be able to reclaim the U.K. tax charged on their dividends. Deltec, with no U.K. tax to pay, can afford to use its dividend income to pay off quickly the debentures it is offering to present stockholders; if the trick works, it will soon be venturing farther afield. Shareholders in the companies which catch its fancy will have reason to bless the Chancellor: the market valuation of their shares will be fixed not by the net but by the gross amount of their dividend.
In other words, tonight calypsos, songs of praise,pæans of joy, are going up in Panama and in Brazil, while Oldham cannot get a penny with which to build a school. Indeed, it has had the whole of its education programme turned down in the course of the last week by this Government, which can give concessions. We found on a previous Clause that the Government were able to give a subsidy of £5 million to the German shipbuilding industry.
We find, also, that under the present Clause the Government are conferring benefits, and very large benefits indeed, on United States speculative investors, on speculators in Brazilian property who have no connection with trade at all. Really, apart from the fact that they may be perfectly good landlords so far as I know—I make no personal reflection on a company about which I know nothing—it can hardly be said that they are performing a useful social function of any kind.
I regard myself as a Socialist. I hope I may make that confession without any fear of instructions being given to tap my telephone or anything like that, although I seldom say little on the telephone nowadays except that I cannot pay until the rise comes through. But if there is any question about that, I would like to say that I am on a party line with a well-known London physician. So if anyone hears a reference to a canal, he should realise before notices are circulated that it is not a reference to the Suez Canal, but to a part of the body. [An HON. MEMBER: "Panama."] Or, indeed, to the Panama Canal, which is the matter we are discussing at the moment.
The right hon. Gentleman will have observed that in the Manchester Guardian today we are told that the Suez Canal Company is going into trade—whether it is on the strength of this Clause or


whether it is not—and that the 44 per cent. holding which the British Government have is not sufficient for them to be able to affect the minds of the directors in this matter; which may indicate some reversal of view from the events which it would be too tactless for me to refer now. There we are.
Here is the example that is quoted. I have it merely from the financial columns of the papers. This is the sort of company we are subsidising. This is the sort of venture for which the Chancellor contends it is necessary at this time to provide huge sums of money, something like £35 million of concessions, so that it may be encouraged in its activities. What social function does it perform? What reason can there be?

Sir Patrick Spens: The hon. Gentleman is a lawyer. He must realise that a necessity to qualify is that a company should be carrying on trade outside the United Kingdom. So far as I know at present, he has quoted a company which does nothing except own an estate outside the United Kingdom.

Mr. Hale: And buys and sells property. I should be most happy if the Chancellor would say that the right hon. and learned Gentleman for once is right. It would be encouraging. and I hope that he was right. But, as against that, there is the knowledge of the City of London, which is clearly a well-informed body on legal matters even if it does not know much about economics, and, generally speaking, it has the very best legal advice. Indeed, the absence of the Attorney-General and the Solicitor-General from this debate led to rumours that the boards of Standard Oil and B.P. were likely to have substantial accessions in the near future. Certainly the City has always had the best advice that can be obtained and, indeed, the most expensive.
They say that it applies. The Chancellor does not say that it does not apply. The Chancellor has not risen to interrupt me to say that I am under a misapprehension in the whole of these observations, and that buying and selling property is not a trade within the meaning of the next Clause. Therefore, I am afraid, much as I value the intervention of the right hon. and learned Gentleman,

that I am bound to assume that what the financial pundits think is right and that what the Chancellor thinks is right; and the Parliamentary draftsmen have not suggested that it is wrong.

Sir Harold Webbe: S: Will the hon. Gentleman tell us who is this financial pundit? So far, we have never heard of him, except as the author of a column in an insignificant financial paper.

Mr. Hale: No, the hon. Member has completely misunderstood me. The financial pundit is the man who advised Deltec Investment, the Panamanian company, that the Chancellor was giving benefits to the Sao Paulo Company in Brazil of such a character that Panama ought to jump in at once and make an offer for all the shares to realise a capital profit. Let us be fair and say that American businessmen behind Deltec Investment, who possess great experience of this, have taken the best possible legal advice.

Mr. Harold Wilson: This is a matter on which even eminent lawyers like the right hon. and learned Gentleman the Member for Kensington, South (Sir P. Spens) and my hon. Friend do not agree. If the Chancellor himself cannot get up and give a clear answer to the point raised by my hon. Friend as to whether this kind of company is or is not included and affected by this Amendment, would not it be right now to send for one of the Law Officers, preferably one who knows what he is talking about? I know that the Chancellor wants to make reasonably speedy progress on this Bill, and he could save a lot of time if he would send for one of the Law Officers so that my hon. Friend could be put out of his misery on this point.

4.45 p.m.

Mr. Hale: I am much obliged to my right hon. Friend. I should like to see the Law Officers here. As a matter of form, I think that it is right that we should have their opinion, even if we do not accept it at once. The right hon. and learned Member for Kensington, South has put his case. If he is right in his proposition that this is not a trading company, it was never liable to tax at all; if he is right, this company will be entitled to reclaim the whole of the Income Tax it has paid since 1911.

Sir P. Spens: The hon. Gentleman knows better than I do that whether it is liable for tax or this relief will be a matter for the Commissioners of Inland Revenue in due course when they know the facts about what it does and what it has been doing in the past. It is no good any of us speculating as to what is the present position.

Mr. Hale: This final argument is one which one would have hoped would have been confined to the Reichstag and not to the House of Commons. It is that there is no point in discussing this matter at all because wise and benevolent-minded civil servants will, in due course, make a decision whatever we may say.

Sir P. Spens: No.

Mr. Hale: If it does not mean that, what does it mean? I must remind the right hon. and learned Member, who is a senior Member of the House—and I therefore do it with some reluctance—of an observation of the younger Pitt, who, in similar circumstances, said, "If the hon. Member rises to his feet with the intention of saying something which has no meaning, it is better for him not to have risen at all." Either the right hon. and learned Member meant something or he did not mean something. If his words meant anything at all, they meant that it was no use our discussing the matter, because we were not likely to understand it—and that of itself is rather a nice comment on the Law Officers—

Sir P. Spens: The hon. Member has brought me to my feet again. I apologise to the Committee. This exemption belongs to and can be claimed only by a company which trades overseas. That is the essential point. Whether an individual company comes within the exemption must be a matter for the Commissioners when they have considered the facts and assessed them, and when, if they have assessed them, they have declined to grant the exemption, the company has gone to the courts and the matter has been decided by the courts. At the moment the wording of the Clause is clear. That is all I am trying to say.

Mr. Hale: The wording of the Clause may be clear, but it is not the Clause which deals with it. The question of what the Commissioners of Income Tax in due course decide depends on the

words of the Clause which we pass. They must reach their decision precisely on the wording of the Clause and, at the moment, the wording of the Clause is extremely elaborate. It is true that the Clause refers to carrying on trade outside the United Kingdom, but the two succeeding Clauses—I should be going too wide if I discussed two succeeding Clauses now and I should certainly be called to order—specifically exempt such things as the business of banking. If the right hon. and learned Member were right in his interpretation, it would not be necessary to exempt the business of banking because the words would not apply to the business of banking at all.

Mr. Sydney Silverman: My hon. Friend is extremely experienced in these matters. Does he know of any property company in this country buying and selling property which has ever escaped liability to tax on the ground that it was not trading?

Mr. Hale: No, I do not. I think the point is even clearer than that. The right hon. and learned Member has quoted the words and has said that those words apply only to the carrying on of a trade or business in goods. They, therefore, would not apply to banks or insurance. But the Chancellor himself has introduced a Clause, which comes under discussion next—and it would be out of order for me to refer to it in detail now—to exempt banks and insurance because otherwise they would be included within the wording. In these circumstances, it is clear that a company listed in the Stock Exchange accounts as an investment or real property company which is authorised to buy and sell property abroad and in fact does so comes within the right hon. and learned Gentleman's definition.
Let me give a little comfort to the right hon. and learned Member for Kensington, South. I agree with him that the Clause should mean what he says that it ought to mean. Therefore, let us join forces and help the Chancellor in this matter. We may find that it is almost the unanimous opinion of the Committee that this is the sort of company that should not in any event get any benefit. We can then go on to agree that if there is to be a benefit, it should apply only to a genuine trading company as defined by the right hon. and


learned Member for Kensington, South and the Chancellor should say that he would be prepared to accept Amendments to that effect. In that way we shall achieve a substantial measure of unanimity. In that way we should have the feeling that we had made considerable progress and that the right hon. and learned Gentleman had made a most useful and very constructive contribution to our discussion. I hope that when I sit down in a moment he will rise and give us his views upon that point.
In the meantime, I am constrained reluctantly to feel that the company which I have quoted will benefit. Of course, the shareholders will not benefit, because the entrepreneurs are stepping in; the benefit will finally go to the Deltec or Panamanian Company or some of the American "wide boys" who are behind all these buying operations. That is one of the matters which I suggest the Chancellor might investigate.
We are reaching the stage when the operations of the City of London are directed almost exclusively to the question of tax-free capital appreciation and when a great number of people with a great number of eminent advisers and a great number of brilliant accountants are devoting the whole of their attention to seeing what can be skimmed off industry in the way of capital profits and capital appreciation. They are interested in doing this up to the last possible moment before a Labour Government is returned and before my right hon. Friend sets up his committee to make proposals to reduce tax avoidance, which I hope will bring us reforms and useful Amendments.

Mr. Douglas Houghton: My hon. Friend the Member for Oldham, West (Mr. Hale) may have made out a strong case for adding to the disqualifications which would apply to companies trading overseas in relation to this concession. That is something which we can perhaps consider when we reach the next Clause, but the Amendment before the Committee at the moment relates to the inclusion of Profits Tax as well as Income Tax in the tax relief to be given to overseas trade corporations.
This is an object lesson in discriminatory tax reliefs. They are always complicated and they are very often unfair, and it may well be that the company to

which my hon. Friend has referred will come within the benefit of Part IV of the Bill. It was never intended for such a company; it will get in on the side, as it were. Indeed, whenever we give discriminatory tax reliefs, unless they are very tightly drawn and made more complicated and arbitrary still, then some people unworthy of the relief and for whom it was never intended will get the benefit of it. That is the kind of difficulty which always confronts us when we are considering discriminatory tax reliefs, and it is small wonder that the Administration is always against this kind of thing. The Administration does not like it because it makes it all the more difficult to administer the tax and all the more difficult to justify it to other taxpayers.
What is the purpose of this relief? It is to put companies centred in the United Kingdom and managed in the United Kingdom but with overseas trading operations in a more favourable competitive position in relation to companies registered overseas which are owned by foreign nationals or by citizens of this country or by a combination of both. It is also intended to put the centrally-managed company with overseas trading operations more nearly in a position of equivalence in tax treatment with a British-owned company registered overseas.
How far do we have to go to satisfy those two purposes? That is a matter of opinion. We do not know in detail what is the disparity between the competitors overseas and the British companies. Probably it varies from territory to territory. The level of local taxation varies between one country and another; there is nothing uniform about it. I think that the relative competitive position of an overseas trade corporation and a company operating and registered locally is a very variable factor indeed. When we compare a company registered overseas with an overseas trade corporation owned and managed from this country, there are, of course considerable handicaps placed upon a company registered overseas. There is, for instance, the severance between local management and central management. They have to recruit separate staffs and to have separate contracts. There are all sorts of difficulties and handicaps in having an entirely separate organisation.
When we are considering whether we should put an overseas trade corporation in a position of equivalence with a company registered overseas, we therefore have to take into account the additional handicaps which a company suffers which is registered overseas. There are economies and greater efficiency which can be obtained by the overseas trade corporation because it is based in the United Kingdom.
We come back to the question, how far do we have to go in order to achieve the two objects which I have mentioned? Do we have to include Profits Tax as well as Income Tax? As the Economic Secretary pointed out, the difference between the two is that when profits are distributed the Revenue can recover the tax from the shareholder, but the Profits Tax is not recoverable on distribution.
Is there an argument for relieving the profits of the overseas trade corporation from tax entirely, which is what we do if we grant exemption from both Income Tax and Profits Tax? Should not the profits of the overseas trade corporation bear some tax? It is true that it is or may be a charge on the reserves of the company overseas, but are they to be exempted completely from both Income Tax and Profits Tax in order to satisfy the two conditions with which I started and which are fully set out in the very lengthy and lucid explanation of this subject in the Royal Commission Report?
The Amendment is based on the assumption that it is not necessary to exempt companies from Profits Tax in order to achieve substantially the purpose of the Income Tax concession. The Chancellor may say, "That is your opinion. I hold a somewhat different opinion. I feel that I must go the whole hog if I am to achieve the purpose which I set out to achieve. I cannot go further than the whole hog, and that is where I go and that is where I stop." He will probably say, when considering retaining the Profits Tax on the company, "On what basis do you stop short of complete exemption?" It is a matter of opinion, but in our view it is not necessary to go the whole way in granting this exemption. We feel that it is not right and proper on grounds of equity and is not necessary on grounds of creating a

favourable competitive position to grant total exemption from Profits Tax.
That is the best that one can make of this Amendment, which has been genuinely moved from this side of the Committee, believing that it is wrong to go too far with discriminatory tax reliefs, believing that they must be kept under control and believing that they must be restricted in their incidence and in their scope, otherwise other taxpayers, seeing these reliefs given, will feel that the tax system is not fair.
5.0 p.m.
We do not discriminate in the rates of tax between profits which are easily earned and profits which are hardly earned. Some people have to be very efficient and work very hard to make their profits. To others, it is easy money. On the whole, I would say that industry works hard for its profits and entertainment gets its profits the easy way. There is no doubt that the attitude of many people is a little more indulgent towards those who entertain them than towards those who supply them with goods and services. The entertainment industry in many respects probably gets money the easy way—the football pools, at least; but we do not discriminate in the level of taxation between profits which are earned in one way and those earned in another way.
The justification for this concession has relation solely to the conditions overseas in which these operations are conducted. This Committee, therefore, if it is to do justice to other taxpayers and to keep discriminatory tax reliefs under control, should err more on the cautious side than on that of liberality in considering a matter of this kind.

Mr. Hugh Fraser: I shall not delay the Committee long. I hope that the Amendment moved by the Opposition will be rejected by my right hon. Friend. The hon. Member for Stechford (Mr. Roy Jenkins), in opening the discussion, seemed to miss the whole point of this legislation. It is not a question of equity at established levels of taxation. This is a stop to induce investment in the sterling and other areas. I am quite certain that if this tax goes through unamended, and if it is made quite clear to the American and other investors, it will be of benefit.

Mr. Gordon Walker: In what way will it encourage investment in the sterling area? That is what the hon. Member claims as one of its advantages.

Mr. Fraser: It does it very much. A large number of companies in the sterling area will benefit enormously. If the right hon. Gentleman has followed things lately, he must have noticed again and again that control is passing from this country to other parts of the sterling area. It is far better that the control should be retained here and that there should be development overseas, especially in the sterling area, which would be of benefit. The Bill lays down a structure which will be of great benefit to overseas investors to work through this country and to have the benefits of local taxation which other people have.
Hon. Members opposite have talked about equity and about imposing higher taxes on other persons. Surely, this tax in itself, by the lead that it can give to investors to come through this country and to use this country again as their centre, will mean that more capital is available for investment overseas from here. Therefore, there will automatically be a flow of capital from those interests.
The hon. Member for Stechford should amaze his colleagues by his antiquarian attitude to the question of capital movements in the world and questions and problems of the Commonwealth. The Bill is a great step forward to help the Prime Ministers of those backward territories who at this very moment are assembled in London.

Mr. John Cronin: I agree with the hon. Member for Stafford and Stone (Mr. H. Fraser) that Part IV of the Bill will induce investment in the sterling area and in overseas trade corporations generally, but many of us on this side of the Committee consider that it will be done at the expense of investment in this country, which is our primary concern.
There is little common ground in the Committee about the desirability of Part IV of the Bill. It is quite clear that the Royal Commission had grave doubts about making these large concessions. In fact, the paragraph in the Commission's Report dealing with overseas profits is divided into several sections, each giving the different views of the Commission, so

divided were its opinions. Certainly, we on this side have grave doubts whether Part IV should remain in the Bill. We are concerned that we should at least amend it to make it comparatively innocuous.
When there are generalised doubts about a fiscal measure, it is common sense that one proceeds cautiously. The Chancellor of the Exchequer has a curious psychological trait. He adopts rather an all-or-none reaction to fiscal measures. He tends to produce a 100 per cent, relief or nothing at all. We have had 100 per cent. relief from Entertainments Duty, apart from cinemas, and 100 per cent. increase in shipping investments. One hundred per cent, is the right hon. Gentleman's favourite figure, and here we have 100 per cent. relief for overseas trade corporations.
The Chancellor may be amused at this, but I would counsel him to be more cautious. This will be a far-reaching Measure and all of us who like him would not like him to gain the reputation of his right hon. Friend the Lord Privy Seal as being an organiser of fiscal disaster on a large scale. We hope that the Chancellor will be more successful during his term of office.
I suggest, therefore, that the concession should be pursued rather cautiously. There are various ways of being cautious. One is to cut down the relief. It could be given in terms of percentage of tax payable or by way of allowances. Surely, the simplest way to adopt due caution is to do what the Amendment proposes—that is, to give relief for Income Tax and no relief for Profits Tax. The Amendment has the advantage of simplicity. It would hardly cause any difficulty to the Board of Inland Revenue.
It has been made as a strong point by my hon. Friend the Member for Stechford (Mr. Roy Jenkins) and by other hon. Members that Part IV of the Bill will cause gross inequity between United Kingdom shareholders of overseas trade corporations and other United Kingdom shareholders. That is obvious, because one group will have its income diminished by Profits Tax and by Income Tax and the other group will have its income reduced by Income Tax alone. We on this side would like that obvious inequity to be diminished or avoided.
In the case of non-residents, one finds that there is even more inequity. The non-resident shareholder in an overseas trade corporation will pay no taxes whatever. He will, therefore, have the considerable advantage of having his money invested in a British company and being worth all the advantages of the protection of the British Armed Forces, the value of our consular service and the help of the Board of Trade, but he will be paying nothing whatever for them. We are giving things away on a rather big scale when we provide all these services for nothing at all. Hon. Members opposite, who believe strongly in services being paid for, should at least appreciate the force of the argument that nationals of other countries should not receive British services of a commercial nature on a large scale for no payment whatsoever.
I suggest to the Chancellor that a partial relief of taxation would be more in keeping with the practice of other countries which do discriminate in favour of their overseas trade corporations. The argument that other countries are giving a lot of help to their overseas companies has been rather overdone, because on examination one finds that the other countries which do it on a large scale are Belgium, Switzerland and France, while other countries, and particularly the United States, do it in a very partial manner. The United States, for instance, gives an exemption of 27–30 per cent. instead of the 100 per cent. exemption which the Chancellor insists upon. The United States has been doing this for many years and has had considerable experience of this problem, and so have the other countries which have adopted the system of partial exemption. Therefore, I should like the Chancellor to consider the idea.
Another very important consideration is what is to be the reaction politically in the countries in which these overseas trade corporations are actually resident. It will be very difficult to avoid a strong feeling that there should be an increase of local taxation on these corporations, because, if we simply say that certain companies resident in another country have had their taxation reduced it does not produce any emotional reaction, but if we say that they are to pay no tax at all there will obviously be strong political pressure to increase taxation locally. I

think that the Chancellor should bear in mind that particular fiscal factor which he is creating.

Mr. Bernard Braine: The hon. Gentleman is completely overlooking the fact that in a good many territories the Governments, particularly Colonial Governments, have complained in the reverse way. They have kept their taxation low and some have given powerful concessions to attract new industries to their territories, and they have complained that the concessions have been nullified by the action of the United Kingdom Treasury in ignoring them.

Mr. Cronin: I think that the hon. Gentleman has made a very fair point. Indeed, it is such a fair point that I hope that when he comes to vote on a later Amendment which we have on the Order Paper and which deals with that very point he will vote in our Lobby. However, the hon. Gentleman is dealing with only one group of countries in which overseas trade corporations will be found. I think that the argument which I have just adduced will apply to the majority of countries.
Another aspect of the matter is that this idea of completely exempting overseas trade corporations from Profits Tax will be rather unfair on small companies. As hon. Gentlemen know, small companies do not pay Profits Tax at all on profits up to £2,000, and on profits up to £12,000 they receive an abatement which amounts, roughly to about one-fifth of the profits up to that figure. Those companies will derive no advantage at all, so that unless the Amendment is accepted Part IV of the Bill will have the effect of putting small companies into a more disadvantageous position. All of us know that it is the big companies which are pushing ahead the whole time and competing with overwhelming power to the disadvantage of the small companies. Therefore, I feel that someone should say a word in favour of the small companies. I am sure that many hon. Members opposite share this point of view.
My hon. Friend the Member for Stechford pointed out that Profits Tax is divided into two parts, that on distributed profits and that on undistributed profits. Therefore, any measure which exempts Profits Tax completely causes a definite bias towards distribution. Unless the


Amendment is accepted, Part IV of the Bill will cause increased distribution of profits which is the very reverse of what the Chancellor intends.
I should like the Chancellor to bear in mind what will happen when an overseas trade corporation is wound up. As the Bill stands, if an overseas trade corporation is wound up, Income Tax will be payable on the assets distributed over and above the nominal capital, but not Profits Tax. In other words, any overseas trade corporation which is set up will obtain a distinct advantage over another corporation which is wound up. Therefore, there will be a strong propensity for corporations to be wound up simply in order to enable their shareholders to obtain the advantage of the Profits Tax which is not paid.
I suggest that Part IV of the Bill will cause considerable fiscal disadvantages to this country. We shall find that it will not only cause money to flow into overseas trade corporations, but that it will have the undesirable effect of encouraging such corporations to distribute more and more of their profits or to wind themselves up, which is the very opposite of what the Chancellor desires.

5.15 p.m.

Mr. Gordon Walker: In his speech today the Economic Secretary was a little below the standard which we expect from him. He had not thought out the arguments and had not come to the Committee prepared with any understanding of the points which it was clear that we should make, partly because what the Royal Commission had said was not in favour of this Amendment. The right hon. Gentleman had no answer to the points made by my hon. Friend the Member for Stechford (Mr. Roy Jenkins) about the Profits Tax, and he did not seem to know whether the purpose of the Bill was to help overseas trade corporations to compete with British or foreign companies registered overseas.
I think that the right hon. Gentleman was thinking of foreign companies, but, as my hon. Friend the Member for Loughborough (Mr. Cronin) has just said, there is great exaggeration by the Government about the degree of competition which United Kingdom companies overseas have to face from foreign companies which receive special tax

exemptions. In West Germany, for instance, companies have to pay, whether trading at home or overseas, a 60 per cent. corporation tax and get no concession for overseas trade. There is no unfair competition anywhere in the world from any German company with a British company.
United States companies have to pay a 52 per cent. corporation tax and receive a 27 per cent. reduction for overseas trade, and that only in certain parts of the world. In Australia and in Europe a United States company has no unfair advantage because of tax remission at home. Even Belgian companies get only 20 per cent. of their domestic tax remitted when trading overseas whereas United Kingdom O.T.C.s—if my hon. Friend the Member for Oldham, West (Mr. Hale) will allow me to use that abbreviation which might save a lot of time in an all-night sitting—are to get 100 per cent. remission.
Therefore, the argument which the Economic Secretary was trying to make was really greatly exaggerated, and his attempt to argue that the Royal Commission did not recommend that Profits Tax should be charged on O.T.C.s was really extremely feeble. He did not seem to have read even to the end of the sentence which he was quoting, which says that in the view of the Commission it would be better if profits at a single and undifferentiated rate were charged on overseas profits as hitherto. "Hitherto" means as at the time of writing.
As my hon. Friend the Member for Stechford pointed out—the right hon. Gentleman seemed quite incapable of understanding the purpose of this argument—it does not matter whether we have a single undifferentiated Profits Tax or two. It is merely a question of the burden of the Profits Tax as between overseas trading companies and United Kingdom trading companies, and it makes no difference whether there are one or two rates of tax.
The right hon. Gentleman then used the rather extraordinary argument that Profits Tax is a matter of no concern to shareholders because it falls on companies and not on dividends. This is not a view which has been expressed by shareholders in the past. Of course Profits Tax affects the distribution of dividends because it


reduces the funds out of which dividends are paid, and that is what the Royal Commission says. It says that if O.T.C.s are omitted and exempted from Profits Tax, as the Government are proposing to do and as the Royal Commission did not wish to do, one discriminates between United Kingdom shareholders in an O.T.C. and United Kingdom shareholders in a domestic company in Britain. The United Kingdom shareholder in a domestic company in Britain has Profits Tax deducted from the fund out of which his dividends come, and the United Kingdom shareholder in an O.T.C. does not have Profits Tax so deducted. Therefore, as the Royal Commission says, this is an injustice as between shareholder and shareholder.
Of course, it is bound to increase dividends if any company is exempted from Profits Tax. This was said quite clearly in the Financial Times of 1st May this year, when it said that the exemption of Profits Tax on O.T.C.s increases the scope for higher dividends. Everybody knows this. The argument that by leaving Profits Tax off, one is not helping shareholders to get bigger dividends is quite untenable, and if that is the best argument upon which the Government can rest their case, it is not a case at all.

Mr. Braine: Is it the basis of the hon. Gentleman's argument that these profits have not already been taxed in the country where they were earned?

Mr. Gordon Walker: Of course, I would set off local tax against Income Tax and Profits Tax jointly, as the Royal Commission recommends. If, in any case, local tax in a foreign country were greater than the combined Income Tax and Profits Tax, one would not pay Income Tax here at all. That is what the Royal Commission and the hon. Gentleman wanted, but it is not what the Government are proposing. Whatever the local tax is, even if it is nothing, as in Bahrain or Bermuda, one is relieved of paying Profits Tax here. I take it that I have the hon. Gentleman with me, and if so I hope he will support us in the Division Lobby. It is most extraordinary how he alters his mind directly he sees the point to which his arguments are leading him.
My hon. Friend the Member for Sowerby (Mr. Houghton) and others of my hon. Friends pointed out that it is a

dangerous thing to start tax discrimination as between shareholder and shareholder and as between company and company on this sort of scale. Of course, there are some cases—earned income relief and so forth—but to do it on this scale, so that it should fall upon Income Tax regardless of the type of income that the Income Tax earner is drawing, is a very grave invasion, abandoning and undermining the whole principle on which our Income Tax system has worked since it was first introduced.
This Clause as unamended, and indeed the whole of the Bill, dangerously erodes the tax base. This is becoming a very great problem in our modern economy, that the tax base is getting narrowed and narrowed. If we now exempt from taxation a whole lot of profits which at the moment are paying tax, that means, whatever the hon. Member for Stafford and Stone (Mr. H. Fraser) may say, that to raise any given revenue other taxpayers have got to pay more than they would need to. This is inescapable logic. It is no good his telling us that, as against that, investment will be built up overseas, because that is not to be taxed. That will not bring any relief to any other United Kingdom taxpayers.
The more these profits are piled up, the more money will escape taxation and the greater the burden that will fall upon United Kingdom taxpayers who are not so exempted. I was glad that the hon. Member for Stafford and Stone wanted specifically to help the sterling area. He will, no doubt, notice that we have a number of Amendments on the Paper which will help to guide this sort of investment into the Commonwealth and sterling area as against other parts of the world. I hope that he, like his hon. Friend the Member for Essex, South-East (Mr. Braine), will go into the Lobby with us.
There are two specific points of some importance which I should like to raise with the Chancellor. One was mentioned in the Financial Times of 11th June. A rather gross and unintentional anomaly seems to be emerging in that some companies, it seems, will get relief from Profits Tax, even on undeclared dividends. The Financial Times says that at the same time, there are some individual companies such as some rubber corn-panics carrying on their operations


abroad and themselves directly quoted on the Stock Exchange, which are to be relieved even from Profits Tax on their own declared dividends. That is in the Financial Times which is well-informed on these matters.
If this is indeed the case, I hope that whatever the Chancellor may say about our major Amendment, he will consider a way of blocking up this loophole of exempting Profits Tax on overseas trading corporations which are quoted here on the Stock Exchange.
Another point to which I should like an answer is raised in the Financial Times of 1st May. It says that the advantage to investors of having a direct share interest in O.T.C.s may induce companies with wholly-owned and eligible subsidaries to pass on part of their interest to individual shareholders. An O.T.C. which has got subsidiaries overseas can pass some of the shares which it has in those subsidiaries to the individual shareholders holding shares in the parent company.
Such a course might attract distributed Profits Tax",
says the Financial Times. I ask the Chancellor, would it or would it not? If it does not, this is going to create a class of extremely privileged United Kingdom shareholders. On this point, the Financial Times was not clear. It said it might or it might not, having read the Bill with great care and having made valuable commentaries on it. I should like to know whether that is true. I hope we shall hear from the Chancellor, and I hope that we shall get a rather more lucid and honest facing of the points which we are making as well as of the points made by the Royal Commission. They cannot be brushed aside in this way.
There must have been some special reason why the Government decided not to carry out what the Royal Commission said in this respect. We have not yet heard a single reason. The Royal Commission would not have had a majority for these proposals had it thought that Profits Tax ought to be exempted in this way. There was an extremely narrow majority. The Report assumed throughout its proposals that Profits Tax would, in fact be charged only on distributed dividends and distributed profits. That

assumption has been overthrown by the Government. They have, therefore, produced, and specifically in this Clause, proposals which would not have carried the majority of the Royal Commission.
That having been deliberately done by the Government, no explanation having been given on this point in the Second Reading or in the Budget Debate, we feel that we are owed a serious attempt by the Government to justify this extraordinary position. Failing a satisfactory explanation, we shall have no alternative but to divide the Committee.

The Chancellor of the Exchequer (Mr. Peter Thorneycroft): We have had a fair and full debate upon this point which is, indeed, quite a short and narrow one. It is whether we should extend the exemption which is given to the overseas trading corporations in the field of Income Tax to Profits Tax. That is the point which we are arguing.
It is true that in his opening speech the hon. Member for Stechford (Mr. Roy Jenkins) went considerably wider, and indicated that the Opposition had really come down against the whole conception of relief to overseas trading corporations. I think that the Opposition have taken a grave decision in a matter of this kind. Here is a provision in this Finance Bill which is designed to help the great trading companies in this country and all over the world, including many in the great Commonwealth—a concession which has been welcomed largely in the Commonwealth, both dependent and independent. This is a provision which will fortify our trading position, openly condemned by the Opposition.
The right hon. Member for Smethwick (Mr. Gordon Walker), in winding up, referred to our Commonwealth interests and matters of that kind, and I should have thought that if he were interested in those he ought to be supporting the broad concept behind this provision.

5.30 p.m.

Mr. Gordon Walker: The right hon. Gentleman will have noticed that we have tabled a new Clause which is designed to give the entire aid to investment in the Commonwealth and none elsewhere. If he proposes to use those sort of arguments, the right hon. Gentleman must be fair about it.

Mr. Thorneycroft: I am glad to hear that the attack launched, and all the arguments about narrowing the tax base and discrimination being exercised, was really not to be carried quite to the extent to which it was carried by the hon. Gentleman.

Mr. Gordon Walker: If the right hon. Gentleman will do us the honour of reading our new Clause, he will see that it proposes a completely different way which does not erode the tax base in this manner.

Mr. Thorneycroft: No doubt we shall debate that Clause when we come to it.
Whether the hon. Member for Stechford wants to narrow the point or whether Profits Tax should be included in the exemption as well as Income Tax, what we are doing here in these overseas trading corporation Clauses is seeking to put British companies trading overseas in a better competitive position. Whether we do that or not, there will be discrimination—there is discrimination today.
It is to remedy that discrimination that these Clauses have been put into the Bill. There is discrimination in favour of a company resident overseas, a foreign company which does not pay United Kingdom tax, which is outside the United Kingdom tax net, and there is discrimination in favour of that company as against a company in this country. If we adopt the broad policy set out in these Clauses, there will still be discrimination. The hon. Gentleman was perfectly right. There will be discrimination between advantage given to a company trading overseas compared with a company which is trading in this country.
I mention that because I wish to make the point that we cannot avoid discrimination in a matter of this kind. The question is where the discrimination should fall and where it should be removed. We have decided, rightly or wrongly, that we shall seek to end, or, at any rate, very much reduce, the discrimination which exists between a British company trading overseas and a foreign company or a company resident overseas outside the tax net. That is the decision, the policy, we have adopted and which we argued during the Second Reading debate on the Finance Bill and which is incorporated in these provisions.
The question is: how far should we go? The hon. Gentleman said that I was a one hundred percenter and I think that I am in matters of this kind. If one makes a decision, there is a lot to be said for not dithering about it, for not half doing the thing and being too nervous to carry it through to its logical conclusion. I am not impressed if other countries have gone only half-way. If one makes a decision to give an advantage to one's own companies trading in other parts of the world, one should see that that is done properly and completely.

Mr. Roy Jenkins: Let me be clear about exactly what the right hon. Gentleman is now saying. Am I right in saying that the object of the Government in this matter is not merely to remove the discrimination against a company resident in this country as opposed to a company operating in an overseas territory wherever it may be; as opposed to a company registered and resident in another country—in the United States, Switzerland, Belgium or wherever it may be, or operating in an overseas and perhaps under-developed country—but to go much further and to say that in all the circumstances the company registered in Britain must be favourably placed compared with a company resident anywhere else in the world, however low the taxation may be where the company is resident or even if there be no taxation at all?

Mr. Thorneycroft: The first answer to that must be that the greater advantage which we can give to British companies anywhere in the world, the better. Their relative position with other companies will, of course, vary from case to case. It will depend upon the balance between the local taxation which is charged, on the one hand, and the metropolitan taxation which is charged by the foreign country concerned. There will be variety of position, but I would say—I hope that I carry the Committee with me—that in so far as we can achieve it, we should seek by every means to see that no company in the world is put in a better position than British companies trading overseas.
I wish now to refer to the Profits Tax. I do not pretend to be an expert in these matters, or to follow these rather esoteric arguments about whether it is a tax on


reserves or on dividends. For this purpose it does not seem to me to matter very much. If, in fact, we charged Profits Tax, it does not seem to me to matter whether we regard it as tax upon reserves which is charged on the reserves of a British company trading overseas, but not on the reserves of a company which does not come within the British tax net and we disadvantage the British company.
It does not seem to me to matter whether we regard it as a tax on reserves of 30 per cent. or a tax on dividends, a remitted tax, or if we accept the view of the Royal Commission of a flat-rate tax and it is a 10 per cent. tax. It is still a substantial disadvantage to British companies trading overseas, compared with other companies from other countries trading alongside them.
In those circumstances, we have come to the conclusion that the right thing to do is to remove that discrimination

against British traders overseas. I quite agree that there are arguments both ways about these things. The matter has been put quite fairly in a number of speeches. One can say that to do this will make the overseas trading company that much more attractive. That is a fair argument to advance. If it is made more attractive and more efficient, more shareholders may benefit, but I am not shocked by the idea of shareholders benefiting. If these companies are made more attractive, and if they attract investment, not only from this country but from other countries, is that a thing of which we should be ashamed? On the whole, I think it an argument which will commend these Clauses to the Committee, and so, for all those reasons, I hope that hon. Members will give the Government their support.

Question put, That the words "and the profits tax" stand part of the Clause:—

The Committee divided: Ayes 273, Noes 224.

Division No. 143.]
AYES
[5.36 p.m.


Agnew, Sir Peter
Conant, Maj. Sir Roger
Gower, H. R.


Aitken, W. T.
Cooke, Robert
Graham, Sir Fergus


Allan, R. A. (Paddington, S.)
Cooper, A. E.
Grant, W. (Woodside)


Alport, C. J. M.
Cooper-Key, E. M.
Grant-Ferris, Wg Cdr. R. (Nantwich)


Arbuthnot, John
Cordeaux, Lt.-Col. J. K.
Green, A.


Armstrong, C. W.
Corfield, Capt. F. V.
Gresham Cooke, R.


Ashton, H.
Craddock, Beresford (Spelthorne)
Grimston, Hon. John (St. Albans)


Atkins, H. E.
Crosthwaite-Eyre, Col. O. E.
Grosvenor, Lt.-Col. R. G.


Baldock, Lt.-Cmdr. J. M.
Crowder, Sir John (Finchley)
Gurden, Harold


Baldwin, A. E.
Crowder, Petre (Ruislip—Northwood)
Hall, John (Wycombe)


Balniel, Lord
Cunningham, Knox
Hare, Rt. Hon. J. H.


Barber, Anthony
Currie, G. B. H.
Harris, Frederic (Croydon, N.W.)


Barlow, Sir John
Dance, J. C. G.
Harris, Reader (Heston)


Barter, John
Davidson, Viscountess
Harrison, A. B. C. (Maidon)


Baxter, Sir Beverley
Davies, Rt. Hon. Clement (Montgomery)
Harrison, Col. J. H. (Eye)


Beamish, Maj. Tufton
D'Avigdor-Goldsmid, Sir Henry
Harvey, Ian (Harrow, E.)


Bell, Philip (Bolton, E.)
Deedes, W. F.
Harvey, John (Walthamstow, E.)


Bell, Ronald (Bucks, S.)
Digby, Simon Wingfield
Heald, Rt. Hon. Sir Lionel


Bennett, F. M. (Torquay)
Donaldson, Cmdr. C. E. McA.
Heath, Rt. Hon. E. R. G.


Bevins, J. R. (Toxteth)
Doughty, C. J. A.
Henderson, John (Cathcart)


Bidgood, J. C.
Drayson, G. B.
Henderson-Stewart, sir James


Biggs-Davison, J. A.
du Cann, E. D. L.
Hesketh, R. F.


Birch, Rt. Hon. Nigel
Dugdale, Rt. Hon. Sir T. (Richmond)
Hicks-Beach, Maj. W. W.


Bishop, F. P.
Duthie, W. S.
Hill, Mrs. E. (Wythenshawe)


Black, C. W.
Eden, J. B. (Bournemouth, W.)
Hill, John (S. Norfolk)


Body, R. F.
Elliot, Rt. Hon. W. E. (Kelvingrove)
Hinchingbrooke, Viscount


Boothby, Sir Robert
Elliott, R.W.(N'castle upon Tyne, N.)
Hirst, Geoffrey


Bowen, E. R. (Cardigan)
Emmett, Hon. Mrs. Evelyn
Hobson, John(Warwick &amp; Leam'gt'n)


Boyd-Carpenter, Rt. Hon. J. A.
Errington, Sir Eric
Holland-Martin, C. J.


Boyle, Sir Edward
Erroll, F. J.
Holt, A. F.


Braine, B. R.
Farey-Jones, F. W.
Hope, Lord John


Braithwaite, Sir Albert (Harrow, W.)
Fell, A.
Hornby, R. P.


Bromley-Davenport, Lt.-Col. W. H.
Fisher, Nigel
Hornsby-Smith, Miss M. P.


Brooman-White, R. C.
Fletcher-Cooke, C.
Horobin, Sir Ian


Browne, J. Nixon (Craigton)
Fraser, Hon. Hugh (Stone)
Horsbrugh, Rt. Hon. Dame Florence


Bryan, P.
Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Howard, Hon. Greville (St. Ives)


Bullus, Wing Commander E. E.
Freeth, Denzil
Howard, John (Test)


Burden, F. F. A.
Gammans, Lady
Hudson, W. R. A. (Hull, N.)


Butler, Rt. Hn. R. A. (Saffron Walden)
Garner-Evans, E. H.
Hughes-Young, M. H. C.


Campbell, Sir David
George, J. C. (Pollok)
Hurd, A. R.


Cary, Sir Robert
Gibson-Watt, D.
Hutchison, A. M. C. (Edinburgh, S.)


Channon, Sir Henry
Glover, D.
Hutchison, Sir Ian Clark(E'b'gh, W.)


Chichester-Clark, R.
Gomme-Duncan, Col. Sir Alan
Hutchison, Sir James (Scotstoun)


Clarke, Brig. Terence (Portsmth, W.)
Goodhart, Philip
Hylton-Foster, Rt. Hon. Sir Harry


Cole, Norman
Gough, C. F. H.
Iremonger, T. L.




Irvine, Bryant Godman (Rye)
Marshall, Douglas
Schofield, Lt.-Col. W.


Jenkins, Robert (Dulwich)
Mathew, R.
Scott-Miller, Cmdr. R.


Jennings, J. C. (Burton)
Maudling, Rt. Hon. R.
Sharples, R. C.


Jennings, Sir Roland (Hallam)
Mawby, R. L.
Shepherd, William


Johnson, Dr. Donald (Carlisle)
Maydon, Lt.-Comdr. S. L. C.
Simon, J. E. S. (Middlesbrough, W)


Johnson, Eric (Blackley)
Milligan, Rt. Hon. W. R.
Smithers, Peter (Winchester)


Jones, Rt. Hon. Aubrey (Hall Green)
Molson, Rt. Hon. Hugh
Spearman, Sir Alexander


Joseph, Sir Keith
Moore, Sir Thomas
Spens, Rt. Hn. Sir P. (Kens'gt'n, s.)


Joynson-Hicks, Hon. Sir Lancelot
Morrison, John (Salisbury)
Stanley, Capt. Hon. Richard


Kaberry, D.
Mott-Radclyffe, Sir Charles
Stevens, Geoffrey


Keegan, D.
Nabarro, G. D. N.
Steward, Harold (Stockport, S.)


Kerby, Capt. H. B.
Neave, Airey
Steward, Sir William (Woolwich, W.)


Kerr, H. W.
Nicholls, Harmar
Stoddart-Scott, Col. M.


Kimball, M.
Nicholson, Godfrey (Farnham)
Storey, S.


Lagden, G. W.
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)
Studholme, Sir Henry


Lambert, Hon. G.
Nugent, G. R. H.
Summers, Sir Spencer


Lambton, Viscount
Oakshott, H. D.
Sumner, W. D. M. (Orpington)


Lancaster, Col. C. G.
O'Neill, Hn. Phelim (Co. Antrim, N.)
Taylor, Sir Charles (Eastbourne)


Leather, E. H. C.
Ormsby-Gore, Rt. Hon. W. D.
Taylor, William (Bradford, N.)


Leavey, J. A.
Orr-Ewing, Charles Ian(Hendon, N.)
Teeling, W.


Leburn, W. G.
Orr-Ewing, Sir Ian (Weston-S-Mare)
Temple, John M.


Legge-Bourke, Maj. E. A. H.
Osborne, C.
Thomas, Leslie (Canterbury)


Legh, Hon. Peter (Petersfield)
Pannell, N. A. (Kirkdale)
Thompson, Kenneth (Walton)


Lindsay, Hon. James (Devon, N.)
Partridge, E.
Thompson, Lt.-Cdr. R. (Croydon, S.)


Lindsay, Martin (Solihull)
Peyton, J. W. W.
Thorneycroft, Rt. Hon. P.


Linstead, Sir H. N.
Pickthorn, K. W. M.
Thornton-Kemsley, C. N.


Lloyd, Maj. Sir Guy (Renfrew, E.)
Pike, Miss Mervyn
Tilney, John (Wavertree)


Low, Rt. Hon. A. R. W.
Pilkington, Capt. R. A.
Turton, Rt. Hon. R. H.


Lucas, Sir Jocelyn(Portsmouth, S.)
Pitman, I. J.
Tweedsmuir, Lady


Lucas, P.B.(Brentford &amp; Chiswick)
Pitt, Miss E. M.
Vane, W. M. F.


Lucas-Tooth, Sir Hugh
Pott, H. P.
Vaughan-Morgan, J. K


Macdonald, Sir Peter
Powell, J. Enoch
Vickers, Miss Joan


Mackeson, Brig. Sir Harry
Price, Henry (Lewisham, W.)
Wade, D. W.


Mackie, J. H. (Galloway)
Prior-Palmer, Brig. O. L.
Wakefield, Edward (Derbyshire, W.)


McLaughlin, Mrs. P.
Raikes, Sir Victor
Walker-Smith, Rt. Hon. Derek



Ramsden, J. E.
Wall, Major Patrick


McLean, Neil (Inverness)
Redmayne, M.
Ward, Rt. Hon. G. R. (Worcester)


MacLeod, John (Ross &amp; Cromarty)
Rees-Davies, W. R.
Ward, Dame Irene (Tynemouth)


Macmillan, Maurice (Halifax)
Remnant, Hon. P.
Watkinson, Rt. Hon. Harold


Macpherson, Niall (Dumfries)
Renton, D. L. M.
Webbe, Sir H.


Maddan, Martin
Ridsdale, J. E.
Whitelaw, W. S. I.


Maitland, Cdr. J. F.W.(Horncastle)
Rippon, A. G. F.
Williams, Paul (Sunderland)


Maitland, Hon. Patrick (Lanark)
Robson-Brown, W.
Wood, Hon. R.


Manningham-Buller, Rt. Hn. Sir R.
Rodgers, John (Sevenoaks)
Woollam, John Victor


Markham, Major Sir Frank
Roper, Sir Harold
Yates, William (The Wrekin)


Marlowe, A. A. H.
Ropner, Col. Sir Leonard



Marples, Rt. Hon. A. E.
Russell, R. S.
TELLERS FOR THE AYES:




Mr. Wills and Mr. Finlay.




NOES


Ainsley, J. W.
Coldrick, W.
Grey, C. F.


Allaun, Frank (Salford, E.)
Collick, P. H. (Birkenhead)
Griffiths, David (Rother Valley)


Allen, Arthur (Bosworth)
Collins, V. J.(Shoreditch &amp; Finsbury)
Griffiths, William (Exchange)


Allen, Scholefield (Crewe)
Corbet, Mrs. Freda
Hale, Leslie


Awbery, S. S.
Cove, W. G.
Hall, Rt. Hn. Glenvil (Colne Valley)


Bacon, Miss Alice
Craddock, George (Bradford, S.)
Hannan, W.


Bellenger, Rt. Hon. F. J.
Cronin, J. D.
Harrison, J. (Nottingham, N.)


Bence, C. R. (Dunbartonshire, E.)
Crossman, R. H. S.
Hastings, S.


Benson, G.
Cullen, Mrs. A.
Hayman, F. H.


Beswick, Frank
Dalton, Rt. Hon. H.
Healey, Denis


Bevan, Rt. Hon. A. (Ebbw Vale)
Darling, George (Hillsborough)
Henderson, Rt. Hn. A. (Rwly Regis)


Blackburn, F.
Davies, Ernest (Enfield, E.)
Herbison, Miss M.


Blenkinsop, A.
Davies, Harold (Leek)
Hewitson, Capt. M.


Blyton, W. R.
de Freitas, Geoffrey
Hobson, C. R. (Keighley)


Boardman, H.
Delargy, H. J.
Holmes, Horace


Bottomley, Rt. Hon. A. G.
Dodds, N. N.
Houghton, Douglas


Bowden, H. W. (Leicester, S.W.)
Dye, S.
Howell, Charles (Perry Barr)


Bowles, F. G.
Ede, Rt. Hon. J. C.
Hoy, J. H.


Boyd, T. C.
Edelman, M.
Hubbard, T. F.


Braddock, Mrs. Elizabeth
Edwards, Rt. Hon. Ness (Caerphilly)
Hughes, Cledwyn (Anglesey)


Brookway, A. F.
Edwards, W. J. (Stepney)
Hughes, Emrys (S. Ayrshire)


Broughton, Dr. A. D. D.
Evans, Albert (Islington, S.W.)
Hughes, Hector (Aberdeen, N.)


Brown, Rt. Hon. George (Belper)
Fernyhough, E.
Hunter, A. E.


Brown, Thomas (Ince)
Fienburgh, W.
Hynd, H. (Accrington)


Burke, W. A.
Finch, H. J.
Hynd, J. B. (Attercliffe)


Burton, Miss F. E.
Fletcher, Eric
Irving, Sydney (Dartford)


Butler, Herbert (Hackney, C.)
Forman, J. C.
Isaacs, Rt. Hon. G. A.


Butler, Mrs. Joyce (Wood Green)
Fraser, Thomas (Hamilton)
Janner, B.


Carmichael, J.
Gaitskell, Rt. Hon. H. T. N.
Jay, Rt. Hon. D. P. T.


Champion, A. J.
Gibson, C. W.
Jeger, George (Goole)


Chapman, W. D.
Gooch, E. G.
Jeger, Mrs. Lena(Holbn &amp; St. Pncs, S.)


Chetwynd, G. R.
Gordon Walker, Rt. Hon. P. C.
Jenkins, Roy (Stechford)


Clunie, J.
Grenfell, Rt. Hon. D. R.
Johnson, James (Rugby)







Jones, Rt. Hon. A. Creech (Wakefield)
Noel-Baker, Rt. Hon. P. (Derby, S.)
Soskice, Rt. Hon. Sir Frank


Jones, David (The Hartlepools)
Oliver, G. H.
Sparks, J. A.


Jones, Elwyn (W. Ham, S.)
Oram, A. E.
Steele, T.


Jones, Jack (Rotherham)
Orbach, M.
Stewart, Michael (Fulham)


Jones, J. Idwal (Wrexham)
Oswald, T.
Stokes, Rt. Hon. R. R. (Ipswich)


Jones, T. W. (Merioneth)
Owen, W. J.
Stones, W. (Consett)


Kenyon, C.
Paling, Rt. Hon. W. (Dearne Valley)
Strachey, Rt. Hon. J.


Key, Rt. Hon. C. W.
Palmer, A. M. F.
Strauss, Rt. Hon. George (Vauxhall)


King, Dr. H. M.
panned, Charles (Leeds, w.)
Stross, Dr. Barnett(Stoke-on-Trent, C.)


Ledger, R. J.
Pargiter, G. A.
Summerskill, Rt. Hon. E.


Lee, Frederick (Newton)
Parker, J.
Swingler, S. T.


Lee, Miss Jennie (Cannock)
Parkin, B. T.
Sylvester, G. O.


Lewis, Arthur
Paton, John
Taylor, Bernard (Mansfield)


Lindgren, G. S.
Pearson, A.
Taylor, John (West Lothian)


Lipton, Marcus
Pentland, N.
Thomas, Iorwerth (Rhondda, W.)


Logan, D. G.
Plummer, Sir Leslie
Thornton, E.


Mabon, Dr. J. Dickson
Popplewell, E.
Timmons, J.


MacDermot, Niall
Price, J. T. (Westhoughton)
Tomney, F.


McGovern, J.
Price, Philips (Gloucestershire, W.)
Ungoed-Thomas, Sir Lynn


McInnes, J.
Probert, A, R.
Viant, S. P.


McKay, John (Wallsend)
Proctor, W. T.
Watkins, T. E.


MacMillan, M.K. (Western Isles)
Pryde, D. J.
Wells, William (Walsall, N.)


MacPherson, Malcolm (Stirling)
Randall, H. E.
West, D. G.


Mahon, Simon
Rankin, John
Wheeldon, W. E.


Mallalieu, E. L. (Brigg)
Redhead, E. C.
White, Mrs. Eirene (E, Flint)


Mallalieu, J. P. W.(Huddersfd, E.)
Reid, William
White, Henry (Derbyshire, N.E.)


Mann, Mrs. Jean
Rhodes, H.
Wilkins, W, A.


Marquand, Rt. Hon. H. A.
Robens, Rt. Hon. A.
Willey, Frederick


Mason, Roy
Roberts, Albert (Normanton)
Williams, David (Neath)


Mayhew, C. P.
Roberts, Goronwy (Caernarvon)
Williams, Rev. Llywelyn (Ab'tillery)


Mellish, R. J.
Robinson, Kenneth (St. Pancras, N.)
Williams, Ronald (Wigan)


Messer, Sir F.
Rogers, George (Kensington, N.)
Williams, Rt. Hon. T. (Don valley)


Mikardo, Ian
Royle, C.
Williams, W. R. (Openshaw)


Mitchison, G. R.
Shinwell, Rt. Hon. E.
Willis, Eustace (Edinburgh, E.)


Monslow, W.
Silverman, Julius (Aston)
Wilson, Rt. Hon. Harold (Huyton)


Moody, A. S.
Silverman, Sydney (Nelson)
Woodburn, Rt. Hon. A.


Morris, Percy (Swansea, W.)
Simmons, C. J. (Brierley Hill)
Woof, R. E.


Morrison, Rt. Hn. Herbert(Lewis'm, S.)
Skeffington, A. M.
Yates, V. (Ladywood)


Mort, D. L.
Slater, Mrs. H. (Stoke, N.)
Younger, Rt. Hon. K.


Moss, R.
Slater, J. (Sedgefield)
Zilliacus, K.


Moyle, A.
Smith, Ellis (Stoke, S.)



Mulley, F. W.
Snow, J. W.
TELLERS FOR THE NOES:




Mr. Deer and Mr. Short.

Mr. G. R. Mitchison: I beg to move, in page 15, line 7, to leave out from "having" to "which" in line 8 and to insert:
more subsidiary companies than one, each of which subsidiary companies is an Overseas Trade Corporation and each of.
The object of the Amendment is to confine the case in which a principal company can be an overseas trade corporation to where it has more subsidiary companies than one, each of which is itself an O.T.C. and each of which is carrying on a trade outside the United Kingdom.
I find the width of the present definition rather embarrassing. Subsection (1, a), sub-paragraph (ii), is clear enough), but sub-paragraph (ii) covers the case of a principal company not itself carrying on a trade and having a subsidiary O.T.C. That is not to apply to a principal company where it has any subsidiary resident in the United Kingdom not itself an O.T.C. That is, as I understand it, the present intention of the Bill.
I can understand the advantage of having a principal company itself an O.T.C. in one particular case, that is, where it has subsidiaries in more than one

country overseas and it is able to move the resources of its concern from one subsidiary to another, whether those resources are money, personnel or some kind of equipment. I find it difficult to understand the advantage of having a principal company, itself an O.T.C., if it has only one O.T.C. subsidiary. That, however, it is clearly permitted to do by the Bill. Offhand, I can see no particular reason for that and no advantage in it. It seems rather an improbable case. There may be such cases, but I should think that they were rather doubtful.
There is more to it than that. Suppose there is a principal company which is not itself carrying on a trade but has a single subsidiary company which is an O.T.C. To be or to remain an O.T.C. itself it cannot have another subsidiary resident in the United Kingdom not an O.T.C., but there is nothing in the Bill, so far as I can see, which prevents it having subsidiaries of another kind, that is to say, companies which are not resident in the United Kingdom. Let me outline a case to the Committee.
Suppose there is a principal company which has a subsidiary O.T.C. in Belgium and, as a result, gets certain tax concessions under this Bill. For the moment, I am not concerned with those. Suppose that principal company sets up side by side with that subsidiary another subsidiary, not resident in the United Kingdom, but a company incorporated in Belgium, and starts punting about its resources, cash, personnel and the rest, between those two subsidiaries. It itself remains a principal company and an O.T.C.
There is nothing in the Bill at present that I can see to prevent that happening because the debarring provision, the limiting provision, in subsection (2), refers only to subsidiaries resident in the United Kingdom and does not in any way deal with foreign companies which may still be subsidiary in the sense of being fully controlled by the principal company.

Mr. Remnant: Surely any O.T.C. would be registered abroad?

Mr. Mitchison: With great respect to the hon. Member, that does not seem to matter. The point is that the state of affairs I have indicated could exist under the provisions of the Bill and the principal company and one, but not both, of those subsidiaries could be an O.T.C. I hope the hon. Member and the Committee as a whole will realise that that opens the door very widely. For instance, it is possible in those circumstances for the principal company to influence and, in effect, to control transactions between the two subsidiaries in such a way as to give a considerable advantage by way of tax relief where that advantage is not intended to be given.
It is hard enough to control the price at which goods are bought and sold between companies virtually under the same ownership in this country. It becomes even harder to do that when we are dealing with transactions in other countries. In the sort of case I have in mind it would be possible for the O.T.C. subsidiary, having made a very considerable trading profit, instead of distributing it directly back to the principal company, in which case, of course, there would be questions of tax on the dividends, and so on, to transfer those profits to the subsidiary company which is not resident in the United Kingdom and is not subject to

English tax law. I cannot see the reason for leaving the door as widely open as it is.
One can exercise a great deal of ingenuity in thinking of cases in which transactions of which no one in the Committee would approve could be worked by virtue of the fact that this Clause is at present exceedingly wide. If I am asked to indicate the point at which I think it is exceedingly wide, I should say that the principal company may have a subsidiary O.T.C. carrying on a trade outside the United Kingdom, but the only limitation on what else it may have besides that is the limitation in sub-paragraph (ii), and that limitaton refers only to companies resident in the United Kingdom.
I move this Amendment with the main object of getting the Government to state why they have limited it in that way and no further and to get an answer to the serious anxiety of my hon. Friends and myself as to the possibilities of evasion, which—at first sight, at any rate—this Clause seems to indicate. I have not gone into any general question, but, looking very carefully through these complicated provisions, I am left with the impression, which appears to be shared to some extent by the financial Press, that there are quite enough opportunities for rather doubtful practice. It is up to us to see that during the Committee stage of the Bill those opportunities, so far as we can manage, shall be closely reviewed and very carefully cut down where they exist.
These are complicated matters. I should be the first to admit that it is the kind of question upon which technical advice such as is available to the Treasury is invaluable, but on first impression this provision seems to go too far. I hope that whoever is to answer from the Government Front Bench will not just confine himself to the one example, but make perfectly clear why it is necessary to extend the possibility—the necessity if hon. Members like—of being an O.T.C. from the very simple case in sub-paragraph (i) of a company which is carrying on a trade outside the United Kingdom, to a principal company in the United Kingdom, save for the purpose of enabling some pooling and shifting of resources between a number of O.T.C.s in different companies.

6.0 p.m.

Mr. Birch: The hon. and learned Member for Kettering (Mr. Mitchison) has raised a number of very important points on this Clause. He rightly said that the main object of having a non-trading O.T.C. holding company is to facilitate switching between subsidiaries, but it might perfectly well be a reasonable business arrangement for a non-trading holding company to have a single O.T.C. For example, it might be necessary to do so to have some local interest in the place overseas where the company is working. It does not give rise to any evasion because any distribution is chargeable. I will come to the question of evasion overseas in a moment.

Mr. Mitchison: Would the right hon. Gentleman explain what he means when he says "to have an interest in some other country"? The principal has itself not to be carrying on any trade in the United Kingdom.

Mr. Birch: Perhaps I did not explain myself clearly. What I meant was that if the subsidiary O.T.C. company is working, as it must be, in an overseas country, it may be necessary for trade reasons to have a certain amount of foreign participation in that O.T.C. and there might therefore be a sound business reason for allowing this to take place.

Mr. Niall MacDermot: I still have not understood. What we are dealing with here is a single holding O.T.C. company having one, and one only, subsidiary, and that subsidiary is also an O.T.C.; the parent O.T.C. and the subsidiary O.T.C., with no other company involved at all. That is the position as I understand it. The right hon. Gentleman said there may be a need for foreign participation. If foreign participation is required, why is it needed to be put into a subsidiary? Why cannot the participation take place in the holding company, bearing in mind that both of them must have their controlling management in this country?

Mr. Birch: There is a slight confusion here. A parent company can become a non-trading O.T.C. through owning this single subsidiary, but in more cases than not—and this brings me to the second part of the Amendment—it will also have

other subsidiaries which are resident abroad.
The Amendment is in two parts. It wishes to stop a single O.T.C. trading overseas from making the parent company an O.T.C., but, normally, if we had such a company with only one O.T.C. overseas it would be likely to have foreign registered companies as well, and that brings me to the second part of the Amendment.
The hon. and learned Member is anxious that no O.T.C. holding company shall have a non-resident subsidiary, and he asked us why it was that we had allowed this to take place. The first reason that we have allowed it to take place is that we think it a great mistake to meddle more than we have to with the structure of companies and groups of companies. Clearly, under this O.T.C. legislation there will be a necessity for hiving off and for the formation of new companies, but we see no cause for forcibly altering the structure of companies and groups of companies unless there is some good reason for doing so.
We do not believe that there is a good reason here for taking the course which the hon. and learned Member suggests, which would result in breaking up a number of existing company structures. We do not believe it for this reason: we do not see that there is any chance of evasion here. This touches on the next Amendment, but the fact is that income received from a non-O.T.C. overseas company is not exempt trading income and is, therefore, subject to tax in the hands of the O.T.C. which receives it. In the same way, a grant or loan by an O.T.C. subsidiary to a non-resident subsidiary which was not an O.T.C. would also be subject to tax.
This is a complaint which has been made in many quarters, but as the Bill is drawn we do not believe that there is any chance of evasion here and we therefore do not wish to do what the hon. and learned Gentleman suggests, which would cause a great deal of confusion and unnecessary work in companies and company structures as they are now set up.

Mr. Mitchison: The right hon. Gentleman can take it from me that this is not a case of forcing anybody to do anything. This is simply a question of within what limits we shall give a special


tax concession. Am I right in understanding this from him? He sees no possibility whatever of evasion, for instance—and it is only an instance—in the case which I put to him just now of a principal company in this country enjoying the advantage of the special concession, having a subsidiary in another country also enjoying that advantage and having a second subsidiary not registered in this country. Does he see no possibility of evasion in that case?

Mr. Birch: This is a point which will be discussed on the next Amendment. The point is that it cannot switch without being subject to tax.

Mr. MacDermot: I hope that the Government will look at the matter again and see whether there is not more substance in the Amendment than they have realised. In effect, the Amendment seeks to do two things. The first is to require the O.T.C. holding company to have more than one subsidiary in order itself to qualify as an O.T.C. No argument that I can understand has been advanced against that. It is the relatively small part of the Amendment and the relatively unimportant part because, as the right hon. Gentleman said, that is a situation which is not likely to arise often.
The serious point in the speech made by my hon. and learned Friend the Member for Kettering (Mr. Mitchison) has not been met at all. What has just been stated is that when the profits of the non-resident subsidiary—I prefer to call it the foreign subsidiary—are remitted to this country, they are subject to tax. That, of course, is quite true, but what we are afraid of is that evasion will take place in a different way, namely, by the profits which have been earned by the foreign subsidiary being made to appear as if they had been earned by what I might call the sister O.T.C. subsidiary.
It would be quite simple to do that. One can imagine a holding company with two subsidiaries, one a foreign subsidiary and one an O.T.C. subsidiary, both operating in the same country. One can imagine that the foreign company might be a manufacturing company and the O.T.C. subsidiary in effect a commercial organisation, with sales taking place between them.
Those who drafted the Bill are well aware of the dangers of unreal profits being stated in this way by unreal prices being charged in sales to a foreign O.T.C. When that takes place in or from this country, it is controlled under Clause 28, but when we are dealing with the profits of a foreign company, they, of course, are not affected by Clause 28; and the danger as I see it is that profits which have been earned by the foreign subsidiary will by manipulation be made to appear as if they had been earned by the O.T.C. subsidiary, and thus can either be retained or remitted to this country back to the principal without incurring tax. That is the possibility of evasion which it seems to me needs investigating further.
It is apparent that a serious attempt has been made in drafting the Bill to prevent evasion. In this Clause the main intention is to make sure that the O.T.C. will not trade here and will trade only abroad. The object of the Amendment is to prevent manipulation from taking place abroad which will be outside the reach and the control of any legislation here.

Mr. P. Thorneycroft: We are in complete sympathy with the object which the hon. and learned Member for Kettering (Mr. Mitchison) has in mind and I am very far from saying that the complexity of these affairs is such that they do not deserve very careful scrutiny to see that we stop evasion of tax.
We believe that in so far as all these companies are kept within the British tax net, that is to say, provided we restrict our operations to overseas trade corporations, which are, by definition, corporations in which there is at least a 51 percent. British shareholding, and provided the parent company is also within the tax net, we can avoid the type of case which has been very much exercising the mind of the Inland Revenue and which it is determined to avoid. I do not want to lap over into the next Amendment, but it is because of this difficulty that we have restricted the Bill in this way and confined it to overseas trading corporations.
The hon. and learned Member also asked why we allow the case where there is a parent company, only one of the "children"—to use a non-technical phrase—being an overseas trading corporation and the others being that other type of offspring, foreign companies. The answer to that is, "Why not?" We do


not want to break up existing structures more than necessary. It would be a pity to break up existing structures unless we see in them a real danger of tax evasion. I think that that is the point of the hon. and learned Member.
My answer on the tax evasion remains, that we firmly believe that so long as the O.T.C. and the parent company remain within the British tax net we can prevent evasion of that sort. I have listened with care to the arguments and I will, naturally, study them still further. If I find any flaw in the position is revealed—which I do not expect—I will, of course, take action.

Mr. Mitchison: Will the right hon. Gentleman consider this? I quite understand the reason given—the general premise of the Bill—for making a particular subsidiary company an O.T.C. What I do not understand is the reason for making a particular company an O.T.C. in addition in cases where it has other subsidiaries of the type I have been describing. If I say, "subsidiaries of a doubtful nature", it is, of course, an imputation on no particular concern.
I am referring to subsidiaries of a nature which may open the door to possibilities of evasion which seems unnecessary. When the right hon. Gentleman says to me, "Why not?", I feel inclined to reply, "Why?". If one has one's O.T.C. in the form of the parent subsidiary, in the form of the subsidiary registered here, why does one want a second O.T.C. in this country?

Mr. Thorneycroft: I will certainly look at that. It might well prove inconvenient suddenly to end O.T.C. status at the moment when the number of relevant "children" went down to one. There might even be cases where there had been two overseas trading corporations one of which was wound up and the whole structure would have to be altered again. There may be cases of that kind.
The real point, and I am sure that this is what both sides of the Committee have in mind, is not whether it is convenient, but whether there is a danger of tax evasion. We have looked at this matter very carefully and we have drawn some fairly complex provisions to deal with tax evasion. It is because of that difficulty that we will not be able to

move as far as some hon. Members might wish on the next Amendment. We are satisfied that we have the position watertight as it is, but we will certainly take account of the argument we have just heard.

6.15 p.m.

Mr. Douglas Jay: I want to impress our main anxiety upon the Chancellor. As the Bill stands, will it not be possible for a United Kingdom company which is an O.T.C. to have two subsidiaries, one of which is an O.T.C. and the other a non-resident company and, therefore, not an O.T.C. operating in the same country? Would it not be possible for the two companies to arrange affairs, by quoting unreal prices, so that the profits made by the O.T.C. subsidiary would be exempt from all Profits Tax and Income Tax on undistributed profits? We are not entirely satisfied at present that there would not be tax evasion or avoidance as the Chancellor intends.

Mr. Thorneycroft: I follow these arguments as closely as I can. I doubt whether there would be much of a problem as both companies would be exempt from tax. The problem really arises where it is being done through a foreign company in some way enabling a United Kingdom company or a United Kingdom resident to avoid tax which has been exempted through some deal with a foreign company. So long as they are within the British tax net, I think that that would not take place.
I have given an undertaking to look carefully not only at this, but at other Amendments to see whether there is any flaw in the arrangements, because we are as anxious as hon. Members opposite to see that the purposes are restricted to the legitimate purposes of the Bill and are not extended to tax evasion.

Mr. E. H. C. Leather: It seems to me that there may be tax evasion, but would it not be evasion not of United Kingdom tax, but evasion by the registered company overseas of tax in that foreign country and, therefore, no concern of ours? If the foreign country wished to take steps to put it right, that would be its headache and not ours.

Mr. Mitchison: I feel inclined to say that we should not forget liquidation as a possibility, but in view of what the right


hon. Gentleman has said, and as we shall hear more on a similar subject on the next Amendment, and while reserving the right to revert to the matter later, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Sir P. Spens: I beg to move, in page 15, line 9, to leave out "and" and to insert:
or
(iii) it is a principal company not itself carrying on a trade but having a subsidiary company which is not resident and is not carrying on a trade in the United Kingdom but is carrying on a trade outside the United Kingdom, and".

The Chairman: It may be convenient to discuss, with this Amendment, that in page 15, line 9, to leave out "and" and to insert:
or
(iii) it is a company owning not less than twenty-five per cent. of the ordinary share capital of a company which is not resident and not carrying on a trade in the United Kingdom, but is carrying on a trade outside the United Kingdom where the shares are owned by the first-named company for the purpose of the active conduct of a trade by means of such ownership and not for the purpose of dealing in or holding such shares for investment purposes only. The ownership of such shares is hereinafter termed an ' Overseas Trade Participation ', and".

Sir P. Spens: I was immensely encouraged by the speech of the Chancellor on the first Amendment. I was considerably less encouraged by his speech on the second. To date, the Committee has been looking at this matter front the point of view of taxation and evasion of taxation. I have approached it from the view of the fundamental object which we have in mind in this part of the Bill, to increase British trade overseas in every possible legitimate way we can, not to create inequity between different classes of taxpayers in this country, but to try to re-create the goose which laid the great golden eggs which kept us going during the whole of the last century.
Everything which can legitimately be done to create and increase British trade overseas ought to be done and every hon. Member of the Committee is agreed that a great measure towards that can be found by the remissions of taxation proposed in these Clauses. My approach is far from desiring to limit the remissions of taxation. I find that the Clauses are so worded that they obstruct the development of British trade abroad. I want

the scope of the Clauses and the relief to be enlarged to enable that trade to grow and increase on the lines we want.
As the Clause is worded, some very curious anomalies arise. There can be a resident British company carrying on trade abroad through its branches and being an O.T.C. There can also be a British holding company here carrying on no trade in this country, but having another British company carrying on trade abroad in some foreign country. But, as the Clause is now worded, what one cannot have is a British company here carrying on trade through a company resident and registered abroad. That is, in fact, the most common of almost all forms of trade at present; yet, if that be the set-up, no tax relief at all is available.
All of us, I think, who have practised, or had anything to do with companies know that British holding companies, carry on trade in all sorts of different ways in different territories. Sometimes they carry on trade directly through agencies and branches. Sometimes they carry it on through British companies established in order to trade in a particular area overseas. But, more often than not, they carry it on through either the establishment of, or investment in, foreign companies registered overseas. They are all part of the same group; they are all developing the same trade. There may in some large areas such as India be as many as four or five different units.
There is every kind of set-up. If the object is to encourage such a group to do the best it possibly can in developing its trade and meet foreign competition, my respectful submission to the Chancellor and the Committee is that we ought to ensure that all the profits made overseas and kept overseas should be available to the group for the best business and commercial purposes there. If this involves extended tax remission, then that tax remission ought to be provided for in the Bill.
The Chancellor has said, and I fully appreciate it, that it is easy enough to control a principal company here and to control an overseas trading corporation carrying on trade abroad but registered here, but it is more difficult to control what happens to a company registered overseas and what it does with its profits. There is, however, always the principal


company here; we have always got someone on whom the Revenue or the authorities can keep the strictest eye. If the evasion point has to be met, let it be met in some such way as that.
I beg the Committee, for goodness' sake let us not impose limitations on the development of British trade overseas. It is all for the advantage of the country. Some people have said that we ought not to encourage this development. Indeed, I am certain that, even if the Bill goes through as it stands, more capital will go into trade overseas. But it will not be at the expense of home trade at all. If trade overseas is successful, it will bring prosperity and additional trade to this country, to the Dominions, the Colonies and the rest.
If I may say so with all respect to the idea of investing so much per cent. of the national income overseas, it is far better to do it by developing trade more strongly throughout the Empire and in foreign countries. Let us try to rebuild once again the dominating position which British trade and industrial interests held throughout the world before the war.
That is the object. That is why we brought forward the Clause last year, and that is why we are so grateful to the Chancellor for having gone so far as he has this year. Now we ask him not to interfere with the way in which, for historical reasons, groups of companies have been built up, and we ask him not to limit them in any way in their great endeavours.
The foreign registered company is an important unit in overseas trade. There are countries where not only is it legally impossible to trade unless one has a locally registered company but where, for political reasons, it is essential that one should develop one's trade through a locally registered company, political feeling in some areas being so strong. Those activities will be limited unless such companies are included within the group of general overseas companies.
I hope that the Committee will not make evasion of taxation the main test of the Clause. The real test is to ask, are these trading activities going to help the country or are they not? Because I believe that it is essential to include this

extra class of organisation within overseas trade corporations, I commend the Amendment to the Committee.

Mr. Jay: I hope that the Chancellor will not accept the Amendment moved by the right hon. and learned Member for Kensington, South (Sir P. Spens), if I understand its purpose aright. What he proposes, I understand, is to extend the tax exemption to subsidiaries resident abroad which are not themselves O.T.Cs. That, I think, would carry this concession much further than the Royal Commission, the Government, or anybody else has hitherto proposed. Presumably, it would mean a substantial further loss in revenue. I hope that the Chancellor will tell us what the loss of revenue involved would be.
We all want to assist and encourage British trade, but the issue before us today is just how far we should go. It is not sufficient for the Chancellor to say, as he did earlier, that it is a fine thing to help British companies and he is, therefore, making a concession, because that argument would justify his sweeping away all taxation whatsoever. He must address himself to the serious issue of why we should go this far and no farther. It is not enough to remark that we all want to encourage British trade. Surely, what we want to do at the same time, or indeed, perhaps, primarily, is to assist our balance of payments. It would be quite possible to encourage some forms of trade which would have a deleterious, not an advantageous, effect on our balance of payments. Quite frankly, I am at the moment more concerned with the effect of what the Chancellor is doing, and, still more, of what the right hon. and learned Gentleman proposes to do, on the balance of payments rather than with actual Budget revenue.
There is no question that in several ways this concession, even as it is in the Bill, will immediately be disadvantageous to our current balance of payments. In the first place, of course, less tax revenue will be transferred to this country for the balance of payments, and that will mean a loss, perhaps, of the full £35 million. Secondly, it is clear that the Bill as it stands, and, still more, the right hon. and learned Gentleman's Amendment, is a disincentive to companies to make remittances to this


country. Provided that they do not make remittances to this country, they save a lot of tax, and there is thus a further asset removed from the balance of payments in consequence.
I should like to ask the Chancellor, because I may not be absolutely right about it, whether there is not a third and, possibly, a more serious injury to the balance of payments implicit in the Bill which would, indeed, be made much worse by the Amendment proposed by the right hon. Gentleman the Member for Kensington, South. Is it not possible for an ordinary British manufacturing and exporting company, as the Bill stands, to form an O. T.C., for that O.T.C. to manufacture British goods in a foreign country, which would otherwise have been manufactured here and exported abroad, and then to export the products of that manufacture from, perhaps, Belgium or France or wherever it may be, to various markets all over the world?
I am not sure that all hon. Members opposite have quite realised that, if I am right and it can be done, this Bill as it stands is to some extent an incentive to the ordinary British manufacturing company to transfer its production overseas for export purposes. If it does so, of course, it saves the whole of the Profits Tax and saves Income Tax on all its undistributed profits. That would be a very large concession indeed. Whether or not we think that is justified, we ought to have it quite clearly from the Chancellor whether, in fact, it is possible to do that under the Bill as it now stands.

Mr. Geoffrey Stevens: rose—

Mr. Jay: I think I know the point which the hon. Gentleman has in mind.

6.30 p.m.

Mr. Stevens: The right hon. Gentleman probably does, because we had a few words about it a short time ago. As things are at present, quite apart from this Finance Bill, is not that the position now? Is it not possible now for any British manufacturer to form a subsidiary in a foreign country and carry on his manufacture there?

Mr. Jay: That is just what I was going to say. I was about to say that the Chancellor may reply to the point by saying

that it is possible, without this Bill, for a company to form a non-resident subsidiary and carry on manufacture abroad, and we should lose the amount of the tax anyway. There are two replies to that.
First, without this Bill, it could not do it and still retain the convenience of management and control in this country. The disinclination to lose that convenience may be a considerable deterrent to companies doing that now and it will be entirely removed if the Bill comes into force. Secondly, I do not think that the Chancellor will argue that there is really nothing in this, because if we do not pass the Bill and enable companies to have their managements here, and carry on their production abroad, they might have gone abroad anyway and have escaped taxation in that way. If the Chancellor is going to argue that, surely he cannot tell us that tshere will be a loss of £35 million in revenue to the Exchequer as a result of the Bill? If he really believes that there would have been just as much transfer abroad and loss of revenue as a result of the Bill, he cannot think that there would have been a corresponding movement of companies abroad to become non-resident companies.
Therefore, I should like to say to the Chancellor that, if we understand rightly the Amendment moved by the right hon. and learned Gentleman, he would, by giving exemption to non-resident subsidiaries, be making it even easier to carry on production and manufacture abroad instead of in this country, which, it certainly appears to us, would be even more damaging to our balance of payments. We should like to know whether or not under the Bill, a company manufacturing here can now retain its control here, transfer its manufacture abroad and carry on its exports in that way, with obvious injury to our balance of payments, and have this large tax concession as an incentive to it to do so.

Mr. Stevens: I should like very strongly to support the arguments put forward by my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens). The right hon. Member for Battersea, North (Mr. Jay) said that we all want to help British companies wherever they may be situated, and that the best way to do that would be to


reduce taxation and even to abolish taxation on their profits altogether. I could not agree with him more, and I was very glad to hear him say so. I hope that if ever his party gets into power again, which is doubtful, he will carry it out.

Mr. Jay: So that there should be no misunderstanding, what I said was that that appeared to be the conclusion of the Chancellor's argument, but, as he has not accepted that conclusion, the Chancellor is not really accepting his own argument.

Mr. Stevens: I hoped that the right hon. Gentleman was speaking from the depths of his heart, and not making a debating point.
I think this illustrates very clearly how much hon. Members opposite have missed the whole point about this overseas trading corporations concession. The whole object is simply to put British companies trading overseas on the same footing as indigenous companies operating overseas—nothing more, nothing less. One would never have thought from his speech that the right hon. Member for Battersea, North had gathered that.
As I understand, we are discussing, on this Amendment moved by my right hon. and learned Friend, the position not only of limited companies which are subsidiaries of companies resident in this country, but also of companies in which companies resident in this country have a substantial shareholding, and this is not an unimportant point. As business becomes larger and attains a greater scale all over the world, so it becomes more and more difficult for organisations in this country to be responsible for these schemes.
I have in mind, in particular, the consortium which is building a great steel works in India. There is not a single company in this country of which the company which has been formed in India is a subsidiary. A number of companies in this country have banded together, and each has a substantial stake in this company overseas, so that the company is not a subsidiary of any of them. At the same time, the shareholding of the principal company in this country is not an investment for surplus funds or anything of that kind, but is very much the kind of subsidiary formed to trade overseas.

It is for that reason that we are submitting this Amendment.
I find it very hard to differentiate in my own mind between the profits of a branch overseas and the profits of a wholly-owned subsidiary or subsidiary company overseas, and if one excepts, as the Chancellor has excepted, the profits of the branch overseas, it seems only logical to extend that also to the profits of the company itself.
The main object of the Amendment and the reason underlying it are very simply as follows. If a principal company in this country has two subsidiary companies, one in country A and one in country B, and the one operating in country A is well established, making good profits and accumulating profits surplus to immediate requirements, while the subsidiary company in country B is a new company struggling in its early days, at present it is impossible, without severe tax penalties for the principal company, to bring home the surplus profits of the company in country A and send them out for the development of the company in country B, which is surely the sort of thing which we all want to see.
That is the object principally underlying this Amendment, but it is not the only object by a long way. It is generally understood, and, indeed, my own intervention in the speech of the right hon. Gentleman opposite rather indicated it, that there is no particular difficulty about a company in this country forming a subsidiary trading overseas and ensuring that that subsidiary overseas pays no United Kingdom Income Tax. That is true provided only that the day-to-day management and control of the overseas company is, in fact, in the country overseas where the company is formed, and that the principal or parent company in this country exercises no more than shareholder control.
In other words, what happens is that management and control leave this country and go to the overseas countries. Indeed, that was the point which the right hon. Gentleman made, and I would have thought that his whole argument was really in support of the Amendment. Surely it is a good thing that management and control should be in this country, which historically has developed overseas to such an enormous extent and which is


still dependent to such a tremendous extent upon our overseas adventures.

Mr. Jay: I thought the whole case for the Amendment was that management and control often is and should be overseas in order to get the participation of the local population, and so forth?

Mr. Stevens: No, I do not think that that was the point made by my right hon. and learned Friend. It seems rather a pity that certain right hon. Gentlemen opposite do not listen to the arguments which are deployed. What my right hon. and learned Friend said was that there is a tendency at present, and it is undoubtedly a growing tendency, for these countries to wish to have a substantial interest in local industries. That is undoubtedly true, but we do not want to assist that movement more than is absolutely necessary. I would not have thought there was any doubt about that. It is a valid point, but it has been taken to a completely illogical and improper conclusion by the right hon. Gentleman.
I very much hope that my right hon. Friend will be able to accept the Amendment. I cannot for the life of me see the difference between the profits of a branch and those of a limited company save on the question of administration. There are certain administrative difficulties which I foresee, but if the heart desires something I should have thought that the Committee and the Chancellor, with his ability, would be able to surmount them if he really applied his mind to the problem.

Mr. Braine: I support my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens), who put the case for the Amendment moderately and clearly. I should like to go a little further. My right hon. and learned Friend described the object underlying the Amendment and the Clause. What are the obstacles in the way of achieving that object? All authorities would, I think, agree that the imposition of United Kingdom tax on overseas earnings has through the years frustrated the accumulation by companies of funds necessary to expand their operations overseas. Secondly, it has disadvantaged British companies operating overseas as compared with their foreign competitors, who bear only local tax.
Double taxation arrangements may safeguard the interests of the Revenue.

but by their very nature they cannot do justice as between one company and another operating in different countries overseas. That has come out very clearly in the debate. If the local tax is high, as in India or Pakistan, little United Kingdom tax will be paid. If the local tax is low, as in some of the Colonial Territories, substantial United Kingdom tax will be paid.
We get, therefore, the extraordinary position that where Governments exercise the greatest restraint in taxation, where sometimes they are so anxious to attract new enterprise into their territories that they are willing to forgo revenue. British companies operating there have been most heavily penalised by current British tax practice.
As was made clear by my hon. Friend the Member for Somerset, North (Mr. Leather) in a noteworthy speech during the Committee stage of last year's Finance Bill, nowhere is the effect of this more damaging than in those countries where Governments extend pioneer reliefs to attract industry from outside. Here we have a situation where the United Kingdom Treasury ignores the concessions made by overseas Governments and lays claim to tax which those Governments have forgone. As far as the Colonies are concerned this is a ludicrous position and I ask the Committee seriously to consider it.
On the one hand, Her Majesty's Government, through the medium of the Colonial Office, encourage Colonial Territories to broaden their economics. On the other hand, through the medium of the Treasury, Her Majesty's Government nullify the concessions which are made, with the approval, presumably, of the Colonial Office, to bring this about.

Mr. Roy Jenkins: How will this problem be affected one way or the other by the Amendment?

Mr. Braine: If the hon. Member for Stechford (Mr. Roy Jenkins), who addressed the Committee at great length earlier this afternoon, will be patient, I intend to deploy the argument and, I hope, convince him that the Amendment will help.
This is not a new situation. There have been protests about it in the past by Colonial Governments and, I believe,


even by Colonial Secretaries in Cabinet—at least, I have been given to understand that Colonial Secretaries have been seized of the gravity of the problem. The Clause that my right hon. and learned Friend's Amendment seeks to amend misses the point altogether. In view of what was said in last year's debate on the Finance Bill, that is a grievous disappointment and I must register my protest accordingly.
6.45 p.m.
I warn my right hon. Friend that in some respects I think he keeps very bad company. If Oscar Wilde was right and "there is no sin except stupidity," then on occasions the Treasury must be the most sinful place in the Kingdom. Certainly in this connection the Treasury does not understand the facts of life in the world in which ordinary business has to operate.
Why do Colonial Territories give pioneer allowances? They do so, not for fun, but because it is necessary to attract business into territories that otherwise would be struggling against poverty. Why is it that over the years this Parliament has voted Colonial Development and Welfare Funds and created the Colonial Development Corporation? Surely, it is because we have seen the need for an instrument to create the conditions favourable to private investment in these territories.
In this connection, it is not irrelevant to remind my right hon. Friend that during the past year he has issued nearly £19 million for schemes of development in the Colonies and has authorised the spending of £30 million on new schemes of development. Obviously, this means that the need of the Colonies for aid of this kind is as great as ever. The Treasury, however, by this means, is creating conditions which are favourable, not for British, but for foreign investment in the Colonial Territories.
The Royal Commission recognised all this. It came to the sensible conclusion that companies carrying on business overseas but managed and controlled here should be regarded as overseas trade corporations and should qualify for exemption from tax on undistributed profits. It went further and saw the logic of the argument I am using, that

not only the self-contained United Kingdom company, which operates overseas through branches, but the company which operates through locally registered subsidiaries, should benefit.
The object of the Amendment, therefore, is to remove a distinction which should never have been made, which runs counter to the spirit of the undertaking given to us last year and counter to the letter of the Royal Commission's findings. Last year, we received a specific pledge that the frustration on pioneer reliefs would be removed. The Bill does not do that. It appears from what has been said that both sides of the Committee realise that the majority of the pioneer concessions are given to locally registered companies which do not benefit under the terms of the Bill and which do not qualify for the relief.
Moreover, the distinction runs counter to good sense. I think it is a distinction which could have been made only by those who do not understand how the world of business is conducted in this twentieth century. There are some companies which are best managed and controlled here in this country, perhaps because they have always been managed and controlled in that way. I would describe this as the nineteenth century method of running a business overseas. Then, there is the other kind of company which finds it more advantageous—and, in the conditions of the modern world, more prudent—to organise its activities overseas through locally incorporated subsidiaries. It does so for at least three reasons.
First, such an organisation makes for much greater flexibility in organisation. Secondly, it makes for more immediate supervision. Thirdly, and, perhaps, most important, it pays greater regard to the feelings and susceptibilities of the nationals in the countries in which these undertakings operate.
It may be theoretically possible for locally incorporated subsidiary companies to be regarded for tax purposes as resident in the United Kingdom if they hold their board meetings here in London, thereby qualifying for O.T.C. status. That is theoretically possible. But to conduct business in this way would be to defeat the whole purpose of having subsidiaries in the first place.
There are the strongest possible objections to encouraging this sort of practice. The first objection is that it would make for unnecessary rigidity, tending to divorce those responsible for deciding the policy of the company, the board of directors, from those engaged in the day-to-day management and in making the vital decisions on the spot overseas. In the conditions of the twentieth century such a separation is a bad thing to encourage. In so far as policy decisions have to be based on data collected by the men on the spot, most businessmen who have anything to do with overseas trading will agree that for some companies that would he a retrograde step.
The second objection is that it would be contrary to the modern trend towards a form of organisation which weds good business practice to local sentiment and pride by enabling local nationals to be brought to share in the management and the equity of companies. We talk nowadays of partnership in the Commonwealth. Here is a means of practical partnership between British business experience and local patriotism and experience. Surely that is a form of business organisation which we ought to encourage.
I submit that it is deplorable to suggest, as the Clause is as at present drafted that our best economic interests—

Mr, Remnant: I am sure that my hon. Friend will agree that when he refers to bringing local people into a company he means—for example, in East or West Africa—to include people of both colours?

Mr. Braine: I have never in my life distinguished between the people of different races. I think I understand what my hon. Friend means. The twentieth century conception of business organisation makes it possible in East and West Africa, in various other parts of our multiracial Commonwealth, to bring Africans and Asians into partnership, into practical, healthy, fruitful partnership with ourselves. I am grateful to my hon. Friend for that reinforcement of my argument.
It would be deplorable to suggest, as the Bill seems to do, that the best economic interests of our country would be served by administering all overseas undertakings as branches of companies

resident in the United Kingdom. Such a suggestion is not only deplorable but incredibly short-sighted, because while such a form of organisation hardly makes for maximum efficiency it would present a sitting target for fanatical nationalists everywhere.
I am not ungrateful to the Chancellor for the bold forward step he has managed to take with this Bill, but, as is by now quite clear, I imagine, I do not think he has gone far enough. He may argue, I suppose, that he cannot extend O.T.C. status to companies with locally managed subsidiaries overseas, but that at least those companies are no worse off than they were before, and that a start has been made. Here I would reinforce what my right hon. and learned Friend said at the very beginning of his remarks. I beg of the Chancellor and I beg of the Committee to see what is really at stake.
What is at stake is the ability of British enterprise overseas to take advantage of the opportunities which are now looming up in expanding world trade and in growing world demand for raw materials. Surely the Chancellor must have observed the fact that in the last year or two the British share in growing Commonwealth trade overseas has been declining? Is not that matter for alarm? Is not it right that we should gird ourselves afresh to take advantage of these opportunities?
The Clause which we seek to amend goes some way in that direction, but not far enough. One cannot read any of the intelligent forecasts which have been made in recent years of world trade trends, whether the Paley Report, or the interim Report of the Gordon Commission on Canada's economic prospects, or the O.E.E.C. Report on the prospects of the European economy over the next five years, without realising that there are tremendous trade opportunities looming up. The Americans see them. The Germans see them. I beg my right hon. Friend to realise that by accepting the Amendment he would help British companies trading overseas to equip themselves far more effectively to keep their traditional markets and to find a place in new ones.

Mr. Chapman: I hope that the hon. Member for Essex, South-East (Mr. Braine) will not take it amiss if I congratulate him and say that many on this


side of the Committee have an enormous amount of sympathy with much of what he has been saying. If we could be sure that acceptance of this Amendment would give legitimate encouragement to the formation of overseas registered subsidiaries which, in due time, would evolve inside the Commonwealth into companies run by the indigenous populations of the areas where they were operating, we should give strong support to it, and it would strike a chord of sympathy in the hearts of us on this side of the Committee. That evolution is a part of the development of our Commonwealth, which we should like to see, for we should like to see even the financial reins gradually handed over to the outlying areas.
There is sympathy, too, for the general case that the hon. Member has made, for many countries have been forced already into such development in order to get benefits in present circumstances. I think that Unilever is one of the companies which has been bound to set up overseas subsidiaries registered overseas. That is the sort of thing that through this part of the Bill we want to encourage.
There is another point which I will give the hon. Gentleman. I am speaking from memory, but I think that the Financial Times made it. It is that we could encourage substantial American investment in a number of such companies provided that we were willing to allow them to remain in areas where they were already registered abroad. Perhaps we should not get that investment from the Americans if we were to insist that those overseas subsidiaries should be reregistered here.
Nevertheless, we on this side of the Committee cannot go so far with the hon. Gentleman in suggesting that these overseas registered subsidiaries should have the benefit of the concessions of the Bill, and I want to draw the attention of right hon. and hon. Members opposite to the reasons why we cannot.
7.0 p.m.
The more important point is the simple point of evasion. I am only guessing, but I have a strong suspicion that the Chancellor will make it a prime point in rejecting the Amendment. For example, if we have benefits in this way for overseas subsidiaries, what will be the position of the

Inland Revenue? It is all very well to say that there will be a holding company in this country and that the Inland Revenue can get at it, and that given good will it can be all sorted out, but I do not think that in a legal dispute good will would carry the matter any distance at all. If the Inland Revenue is in dispute with the parent company about the profits or trading activities of the overseas registered trading company, what power has the Inland Revenue to insist upon having full details of the workings of the subsidiary?
I agree that the Inland Revenue can get hold of a great deal of information but, as far as I can see, if it comes to a real point of dispute there will be a great deal of material which will be outside the jurisdiction of the Inland Revenue in this country. If it came to fine points of detail, disputes and arguments and checking, I am not at all sure that the Inland Revenue here would have proper jurisdiction.

Mr. Nabarro: I am sure that the hon. Member for Sowerby (Mr. Houghton) will profoundly disagree with the hon. Member.

Mr. Chapman: I have no doubt that he will, and if my hon. Friend speaks it will add interest to the debate. The evidence given by the Inland Revenue before the Royal Commission states that the evasion found time and again is so great that the Inland Revenue fears any concession on general lines, never mind one which would go as far as the right hon. and learned Member for Kensington, South (Sir P. Spens) would have it go.
Another possibility is that outside the jurisdiction of the Inland Revenue a number of unforeseen things would happen. I presume that it would be possible for a foreign registered overseas subsidiary to make available in foreign countries certain funds to shareholders of the parent company and it would manage to get round part of the regulations in the Bill.
The last point is made by the Inland Revenue when it says in its evidence that the international understanding on this matter is to attribute profits to the place where the central seat of a company is established. The Chancellor ought to take into consideration that the Government are upsetting international agreement on


this matter by this proposal and are going contrary to the understanding that tax jurisdiction lies where the company is registered. I can foresee a number of complications arising as a result.
The right hon. and learned Member for Kensington, South has an enormous amount of sympathy on this side of the Committee. I hope that he does not think that is a barren gift, but we want to be sure that the whole proposal does not lead to evasion. If we could be assured on that point I would support the general concessions and I do not think that a great deal would divide the Committee. I strongly suspect, however, that the Chancellor, who has had experience of going into these evasion points, is aware of possibilities which the right hon. and learned Member has not foreseen.

Mr. Leather: I listened with great interest to the speech of the hon. Member for Northfield (Mr. Chapman). I am glad to say that we now appear to be back precisely where we were last year. My hon. Friend the Member for Essex, South-East (Mr. Braine) referred to the fact that the Royal Commission had reported in favour of giving benefits, particularly in relation to pioneer tax reliefs in the Commonwealth, and that the present Prime Minister, when he was Chancellor of the Exchequer, last year agreed and gave a pledge that he would do something about it.
The only significant point that my hon. Friend did not make was that when we urged these matters last year the party opposite was all with us. Hon. Members opposite were saying, "Let us go into the Lobby together." It was only because my right hon. Friend gave a pledge that it all ended happily. The hon. Member for Northfield has at least got back on side even, though he has left his Front Bench out in the wilderness where we on this side of the Committee always expect to find it, anyway.

Mr. Jay: Would not the hon. Member agree that it is possible to support the pioneering concession without going as far as it is now proposed?

Mr. Leather: I would agree to no such thing. The right hon. Gentleman knows that the vast majority of the people who are in a position to receive the benefit of the pioneering reliefs are overseas subsidiary companies and not branches.

What he says is not possible. That is the very point.
Hon. Members opposite puzzle me. We have been told by the hon. Member for Oldham, West (Mr. Hale) that the party opposite alone understands high finance and stock market manipulations and that those stupid people in the City cannot compare with it. The hon. Member for Northfield says that when it comes to tax evasion the party opposite is the absolute "cat's whiskers". It knows more about it than anybody else in the country. Why hon. Members opposite are not all millionaires I shall never understand. [An HON. MEMBER: "Most of them are."] It may be. With all this incredible financial genius that they tell us about, and their knowledge of tax evasion, they should be extremely wealthy people; or could it be that they do not know what they are talking about?
I should like to strongly support the Amendment, and particularly the case put by my hon. Friend the Member for Essex, South-East. Many of us are very concerned with the Commonwealth aspect of this problem. I would go a great deal of the way with my hon. Friend in his criticisms of the Treasury. It certainly seems to us to be anti-Commonwealth. The Bill provides that if concessions are to be made they must be made to the Commonwealth on exactly the same basis as they are to be made to Ecuador, Peru, Costa Rica, and even to Hungary and Egypt for that matter. That is not a view that commends itself to me. If we are to make special concessions, the primary place for them should be in Commonwealth territories, and for very good reasons. I strongly support the plea that everything that we can do to encourage overseas trade should be done.
I profoundly disagree with the right hon. Member for Battersea, North (Mr. Jay) about the balance of payments. The answer is surely a matter of arithmetic. With his vast experience of how the City works, the right hon. Gentleman surely should know these things. If a sum of money is paid today to an overseas company on capital account there is at the moment a deficit on the balance of payments.
If one invests money overseas at the moment one has let the money out, but if one has invested the money wisely—and the majority of businessmen do


know how to invest it wisely or there would not be the tax revenue to pay for the Welfare State—one thereafter has a continuing, and usually an increasing, return coming back every year from invisible exports, from returns on one's overseas investments. After all, that was how this country managed to live for twenty or thirty years with an enormous deficit on its current account, namely, because of the overseas investments which it had built.
That is altogether to the good of the balance of payments, and surely that is something which this Committee wants to encourage. Therefore, it seems to me that the fundamental idea behind this scheme—an idea similar to that which some of us have been talking about in the House of Commons for many years—is that we want to give the maximum encouragement which can reasonably be given to British industry to do two things. One is to invest abroad and the other is to bring dividends back. We want a positive incentive to do those two things, because the more we can give it, the more we shall strengthen, in the long run, the balance of payments and build the standard of living of our own people. That is the object in my mind and, I believe, in that of my right hon. and learned Friend and in the minds of most of my colleagues here.

Mr. Mitchison: Before the hon. Gentleman gets to his peroration, may I remind him of what happened last year? He proposed a limited Clause on the lines of pioneer relief. It was not exactly the same as ours, but it was near enough for me to get up directly after him and say that I generally agreed with it. That statement can be found in column 1248 of the OFFICIAL REPORT for 19th June, 1956.
Then, when we come to the other question, the kind of thing that is being proposed in this Bill, I took objection to it. One of my objections—I think it is the main relevant one today—was that such an arrangement would open the door—
…to schemes which, by their character, would not commend themselves to the Committee in general and would be tailored to meet this rather sweeping provision."—[OFFCIAL REPORT, 19th June, 1956, Vol. 554, c. 1252.]
That is to say, it would open the door too wide and would allow opportunities

which I did not believe would commend themselves to the Committee at that time. In short, I made it clear, speaking for this side of the Committee, that while we agreed with the principle of pioneer relief concessions, we did not commit ourselves to anything more and, indeed, viewed it with considerable suspicion, as we still do.

Mr. Leather: The hon. and learned Gentleman is very welcome to that point, and now it is on the record we all know where he stood last year. Some of us, however, are a little puzzled about where he stands this year.

Mr. Mitchison: May I reassure the hon. Gentleman that I stand in exactly the same place?

Mr. Leather: I am not trying to make a debating point but, with great respect, hon. Gentlemen opposite are not helping to clarify the issue. They are not addressing themselves to the issue if they continue completely to ignore the question of companies formed overseas, subsidiaries overseas. It is no good their saying, on the one hand, that they will not go along with that because it is opening the door far too wide and, on the other, that they entirely support us when we try to do something for people to get pioneer tax relief in the Commonwealth. Whether they like it or not, the two cases are the same.
The point I want to make to my right hon. Friend is that I fully appreciate him saying, "I have gone thus far. I cannot go any farther. Do not push me too quickly. Let us feel our way." That is an entirely reasonable argument. I differ from him in this. I do not believe that we are asking him to go any farther. I believe that the division between the subsidiary company formed in a Commonwealth country and the branch is a completely artificial one which has grown up in the mind of the Treasury.
7.15 p.m.
I do not believe that it is a fair and reasonable division, because it is completely contrary to the whole of modern business practice. It is contrary to everything we are all trying to do, particularly throughout the Commonwealth, and it is an artificial division which will do harm. Therefore, while thanking my right hon. Friend for what he has done,


which, I agree, is a great step forward, and which we welcome, I strongly press him to try to get around this problem of what I regard as an artificial division, which will leave outside this Bill the bulk of these people whom we are trying to help, for good national reasons.

Mr. P. Thorneycroft: If I may, I will, first, recall the Committee to what the Clauses do. They are designed to put a British resident company trading overseas into a better competitive position. That is their object. They do it, in particular, as regards an overseas subsidiary, by freeing it from United Kingdom Profits Tax and Income Tax. As I understand, at least half the Committee welcomes that. It is welcomed as a substantial advance which will advantage British companies trading overseas, very many of them operating in the Commonwealth and Empire. Therefore, it is generally acceptable to the Committee. This Amendment deals with non-resident subsidiaries.
The first point I want to make—and I have to make it emphatically in view of the eloquent speeches that have been delivered—is that non-resident companies are not worse off. Nobody is damaging non-resident companies. Yet to hear some of the things that have been said one would think that we in the Treasury were dealing a bitter blow to non-resident companies. They remain as they were before, not subject to United Kingdom Income Tax. Indeed, in many ways they have certain particular advantages over even the overseas trading corporations, because not only are they free of United Kingdom Income Tax upon their trading profits, but they are free of tax on their investment income as well. They are outside the United Kingdom tax net.

Mr. Roy Jenkins: On overseas?

Mr. Thorneycroft: Yes, on overseas, but as regards these companies there is nothing in this Bill which makes them in any way worse off.
Moreover, so far as the United Kingdom is concerned, if they wish to do so they can switch profits from one company to another overseas. We in the Treasury have no control over that. They can switch from one country overseas to another country overseas, and to the best of my knowledge many of them do so. There is nothing we could do in the

Treasury to stop them, and so far as I can see there is no reason why we should attempt it.
All those things remain after the Bill exactly as they were before it, and the only point here is a much narrower one. It is whether they should have tile same arrangements as we provide in the case of overseas trade corporations, the same facility for switching the profits earned by one of those subsidiaries A to another subsidiary B through the process of returning the funds to the parent company. That is really the only point.
I urge my hon. Friends not to press that point, at any rate at this stage. We have already had some discussion about the technical problems of the scheme as it stands today. I think that everybody agrees, whether he agrees wholly with the policy or not, that it is a fairly bold and adventurous scheme. Indeed, many people could criticise it as opening up some dangers of tax evasion. We believe that we have so arranged these matters that there will not be tax evasion. I do not say that one ought to spend one's time thinking about tax evasion and nothing else, but we have to maintain the tax law in full repute.
We have to see that we do not have schemes in which any form of scandal could develop, for the very good reason that if some form of scandal developed the whole scheme would come into disrepute and, before long, we should be pressed from both sides of the Committee either to amend the scheme drastically or withdraw it. I feel confident that that is the view of every hon. Member of the Committee here.
We believe that we have so arranged these matters that within the compass of the arrangements we have here designed there will not be tax evasion and that we can prevent it, but that is on the assumption that the bodies we are dealing with are within the jurisdiction of the Treasury; that they are in fact within the British tax net. If we are asked to go beyond that it is extremely difficult to see what arrangement can be devised to secure matters of that kind.
We would have had to ensure that these companies, non-resident and outside our jurisdiction, did not do anything which would have rendered them outside the


category of an overseas trade corporation, if, in fact, on other grounds, they were able to be an overseas trading corporation. There would have to be a special arrangement to ensure that they did not, for example, carry on any trade in the United Kingdom or did any of the other things, like buying goods before they were free on board, and that when the money was distributed it did not find its way into the hands of the directors or back into the United Kingdom; and all through indirect control operating only on a parent company which had the tenuous hold of 51 per cent. of the shares; which, ex hypothesi on the arrangements put forward, was operating that control with the maximum looseness—because we have had a number of speeches saying how very loose these arrangements ought to be, and that the effective control ought to be overseas. It would be a very tenuous arrangement at the best and without any lever whatever for the Treasury to operate it, because these companies are in other respects entirely outside the ordinary taxation laws of this country.

Mr. Chapman: Is it not also the case that a number of disputed points, if a dispute arose between one of the subsidiaries and the Inland Revenue, can only be settled by the interrogation of directors and other people, and that the Treasury would have no power to summon a foreign national here to settle the point?

Mr. Thorneycroft: It is true that we are subject to all those difficulties. I sympathise with the points put forward. I understand the difficulties and the aims which my hon. Friends have in mind. I would say to them: do not press us, at this stage, in a scheme which has not yet even been tried in practice, because it is not yet on the Statute Book, suddenly to extend it into a wholly untried and what is—whether hon. Members accept the whole of my argument or not—a very precarious, dangerous and complex scheme. Let us try this scheme out as it is at present.
The pioneer industry question and the frustration of pioneer relief is quite irrelevant to this question. It has nothing whatever to do with it because, ex hypothesi, we cannot frustrate the the pioneer industry relief because these

people are not paying United Kingdom Income Tax, so there is no question of their being subject to any frustration of that kind.
I take the point which two of my hon. Friends have put forward, that in many cases this form of organisation has been adopted to enable a company to seek a closer partnership with the people of the territory where it is, in fact, carrying on. The motive behind that is one with which Her Majesty's Government are in full sympathy; indeed, it has been so stated on many occasions. These companies are not disadvantaged by the arrangements which are being made. All that we are doing here is to ensure that the resident company here has its path a little eased.
Let me say to my hon. Friends that there is no particular purpose in maintaining discrimination in favour of the Ecuadorian companies as opposed to British companies operating in Ecuador. It does not really help the Commonwealth. It is in the Commonwealth interest that British traders overseas should be put in the most competitive position possible wherever they are carrying on their trade. That is the purpose for which we have drafted this Bill and the policy which we are pursuing.
In the case of these particular Amendments, while I sympathise fully with what is in the mind of hon. Members—I see exactly what it is they desire—I would suggest to them that the scheme which we have already put forward is a bold and ambitious one. I believe that we can make it watertight so far as tax evasion is concerned and I would beg them not to press us to go further.

Mr. Roy Jenkins: The right hon. Gentleman addressed a very powerful argument indeed to the Committee in the course of his speech which, if I may say so, was a speech which I greatly preferred to his intervention earlier in the afternoon. I hope that when he is endeavouring to persuade the Committee to reject any Amendment coming from this side of the Committee he will tilt the balance of his speech more in favour of argument and less in favour of rhetoric as when dealing with his hon. Friends on this Amendment. I think that he dealt powerfully with the points put, both in putting in perspective the position as it is at present so far as these non-resident and


foreign companies are concerned, and in pointing out the really impossible position which we would get into if we were to attempt to deal with them on a taxation basis.
The hon. Member for Somerset, North (Mr. Leather) spoke as though it were quite impossible in the existing situation for any sort of pioneer relief to be of any benefit to any company registered overseas.

Mr. Leather: With respect, I did not think that at all. My point—and where I disagree with my right hon. Friend—is that pioneer tax relief is given as an incentive, and I took the point of my right hon. and learned Friend that what we want to do in the Committee is to give British industry an incentive. I am not saying that it is penalised or worsened, but that there is at present no incentive and if this scheme is passed there will still be no incentive. That is my complaint.

Mr. Jenkins: When the hon. Member makes his remarks so sweeping as to say that there is no incentive he is conducting the argument in such a loose way that it is almost impossible to deal with it. Pioneer companies, whether British O.T.C.s or foreign companies, can benefit very greatly indeed. If they are foreign companies the difficulty only begins to arise when they wish to take the money out of the country in which they are operating and even then only if they try to do it, not through another foreign company, but only through a British company.
I should like to say a word of apology. The hon. Member for Essex, South-East (Mr. Braine), in the earlier part of his eloquent and fairly long speech, was not, I thought, applying himself very closely to the Amendment. I am bound to say, however, that by the time he came to the end of his speech he made me understand, for the first time, the purport of the Amendment. I had been completely confused by the combination of speeches of the right hon. and learned Member for Kensington, South (Sir P. Spens) and the hon. Member for Langstone (Mr. Stevens).
I am sorry if, earlier, I misjudged the hon. Member for Essex, South-East. The reason I was confused, having listened to those two speeches, is that it is very difficult to decide whether hon.

Members opposite as a whole think that it is desirable that companies operating overseas should or should not have their seat of control in this country. After all, before we had this concession—

Sir P. Spens: I tried to explain to the Committee that in my view there is no fixed rule and that if we deal with it on theoretical principles we are not going to get anywhere. It depends on what each company is doing, where it is operating and which form of machinery is most advisable.

Mr. Jenkins: Therefore, the concession must be given as widely as it possibly can be. This presents a certain difficulty. I accept the point of the right hon. and learned Gentleman that he thinks that circumstances change cases, but, after all, before the Bill, with this concession, was introduced we heard a great deal about the extreme undesirability from our national economic point of view of seats of control being removed from London. That was one of the great arguments put forward in favour of having such a concession. We are now told, however, that in a great number of circumstances it is highly desirable, even with this expensive and far-reaching concession, that seats of control should be so removed.
7.30 p.m.
Hon. Members opposite generally will not understand as I am sure they would wish to our general attitude to this part of the Bill if they do not realise that we believe that such concessions as must be given should be supported by extremely close economic arguments and should, be as narrowly drawn as possible, because there are grave disadvantages in treating one class of taxpayers much more favourably than another.
The hon. Member for Somerset, North failed to apply himself at all closely to the economic considerations to which he ought to apply himself. He said it is highly desirable that funds should go out of this country and be wisely invested abroad on the broadest possible scale. He built up a picture as though he were looking to a future in which we should build ourselves up again into an enormous creditor nation and all live happily on unearned income from overseas.
Our nineteenth century position in this respect was built up not on the basis of a tax position, but largely on the basis of our having a large real investable surplus in our overseas trade balance. No taxation fiddle or change will give us that surplus. There are few things more foolish than trying to invest a surplus which one does not possess.

Mr. Leather: Is it not the policy of the Labour Party to invest in the Commonwealth 1 per cent. of the national income every year? Is that not what hon. Gentlemen opposite are advocating?

Mr. Jenkins: It is certainly the policy of the Labour Party to do that. It is certainly also the policy of the Labour Party to recognise that that requires that we should build up a surplus in order to be able to do it effectively. However, there is nothing more foolish than to believe that one serves some curious purpose by trying to invest a surplus which does not exist in real terms, because this means that one is lending long and borrowing short, an extremely dangerous position.

Mr. Leather: I cannot accept the hon. Gentleman's argument.

Mr. Jenkins: If the hon. Member wants to be taken seriously by the Committee, he ought to apply himself a little more closely to some of the rather complicated points of which his understanding is sometimes a little imperfect despite his self-confidence.

Mr. Leather: The hon. Gentleman is not lacking in self-confidence. There is no point in going into personalities. I was endeavouring to make a case which I thought was perfectly clear, that the investments overseas which I was advocating were analogous to the plan of the Labour Party to invest overseas I per cent. of the national income. I agree that if one has not a balance of payments surplus on current account my argument falls to the ground, but so does the Labour Party's case. All I am pointing out is that we are on precisely similar ground. Surely that is clear.

Mr. Jenkins: I understood that the hon. Member was endeavouring to make a case. I suggest that as he made it it was rather a bad case.
The hon. Member also said that investment of this sort was bound to be a good thing and it developed trade. Those are very loose terms in which to talk about these matters. My right hon. Friend the Member for Battersea, North (Mr. Jay) pointed out that we want to develop trade in order to improve our balance of payments position. We do not want to carry out trading operations for no purpose. We do not want to export all the assets that we have in this country. We are constantly confronted with a problem of choice as between investment in this country and investment overseas, and to some extent, the more we do of one the less we do of the other.
A balance must be struck, and it must not be an unfair one. Earlier, the Chancellor failed to strike a proper balance in that when putting overseas companies on equal terms with any of their competitors overseas he put their shareholders on incomparably more favourable terms than the shareholders of other United Kingdom companies. It is in the light of the balances which have to be struck that we must discuss these extremely complicated problems and try to arrive at a sensible solution.

Sir P. Spens: We have had a long debate. I am still not hopeless about the prospect of convincing the Chancellor and a great number of hon. Gentlemen opposite that an advance in this direction must be made in the interests of our overseas business as a whole. I look forward to having another try next year, and I shall continue to try until I succeed. In the circumstances, I beg to ask leave to withdraw the Amendment.

Hon. Members: No.

Amendment negatived.

Mr. Braine: I beg to move, in page 15, line 10, at the end to insert:
Provided that no company shall be known as an Overseas Trade Corporation unless it so elects.
As the Clause is drafted, a company has no power whatever to decide whether it will or will not become an overseas trade corporation. Its status is determined automatically by the Bill. It seems to me, for reasons which I shall give, that this is unfair and inequitable. I am advised that in some cases this could mean an increase in a company's tax


liability. That surely is exactly the opposite of what is intended by the Bill.
I envisage two sets of conditions in which the Clause as drafted would result in a disadvantage to companies trading overseas. The first example is that of a company trading in a country where the local rate of tax—there are some instances—is higher than that in the United Kingdom. Such a company would derive no benefit whatever from O.T.C. status. On the contrary, it would lose its foreign tax credit.
I am sure the second example will commend itself to the Committee. It is that of a company operating in a country where there are political and economic difficulties. Such a company, possibly possessing substantial assets, may have made trading losses over a number of years. It may have hung on for two reasons. One is that it does not want to risk the loss of its assets. It wishes to avoid expropriation. Hope springs eternal, and it hopes, possibly, that the political and economic climate will change and that it will then, on the basis of good will, be able once again to make profits. I should have thought that it was in the national interest that such companies should not be disadvantaged. But as the Bill is as at present drafted they would have O.T.C. status as from 6th April last and so be prevented from carrying forward their losses and setting them against future tax liabilities. For that reason, I consider that the Clause as drafted is unfair.
I quite agree that it would be impracticable and inequitable for companies to be able to elect to become overseas trade corporations or not as they wish. On the other hand, it seems to me to be unfair to force such companies into the overseas trade corporation network against their wishes. No doubt the Committee can think of ways by which such companies could disqualify themselves for O.T.C. status. For instance, they could do so, quite legitimately, by indulging in trade in the United Kingdom.
I hope that I carry all hon. Members with me when I say that it would be unfortunate if the law is so drawn as to force companies to adopt such devices. It would follow, if a company did so adopt this device, that it would automatically lose its right to offset past losses against future tax liabilities. I trust, therefore,

that my hon Friend the Financial Secretary is seized of the argument, will give favourable consideration to it, and will accept the Amendment.

The Temporary Chairman (Mr. George Thomas): I omitted to suggest to the Committee that the Amendment in the name of the right hon. and learned Gentleman the Member for Kensington, South (Sir P. Spens), in page 15, line 15, at the end to add:
(3) A company which would otherwise qualify to be known as an Overseas Trade Corporation shall not be so known if it applies in writing to the Commissioners of Inland Revenue before the end of the first year in which it so qualifies, or within such further period as the Commissioners at their discretion may allow. Such application shall be effective until it is withdrawn but if it is withdrawn may not be renewed.
might be discussed with this Amendment, if the right hon. and learned Member is so minded.

Sir P. Spens: All I can say is that my Amendment has exactly the same effect, but is worked out in a little more detail. I have nothing to add to what my hon. Friend the Member for Essex, South-East (Mr. Braine) has said.

The Temporary Chairman: Then we will take it that the Amendments will be discussed together.

Mr. MacDermot: I hope that the Government spokesman will deal with the matter raised at the end of his speech by the hon. Member for Essex, South-East (Mr. Braine); namely, what the Government envisage will be the position of a company which makes a habit of altering its status from year to year. As we read the Bill, we agree with the hon. Member that there is nothing to prevent a company which is an overseas trade corporation from disqualifying itself for any particular year and then requalifying for a subsequent year. Indeed, though these provisions are a little difficult to follow, it might be possible for the company to disqualify itself for one part of the year while being qualified for the other.
Let us, however, assume that we have a company which does change its status before carrying out operations, so that in one year it is qualified and in another is not. As has been pointed out, there may


be circumstances in which it is to the disadvantage of the company to be treated as an overseas trade corporation. To the examples we have heard, I think that one can add the further one of where an overseas trade corporation is suffering a trading loss but is also in receipt of an investment income for the same year. As I understand it, if the company has that status it is unable to set off its trade loss against its investment income for tax purposes, whereas, if it has not, it is able to do so.
7.45 p.m.
That seems to provide an example of the kind of way in which it might be advantageous to a company, for the purpose of tax evasion and for no other purpose, to alter its status from year to year so that, in a year when it saw that it was to have a heavy investment income, it could so arrange its affairs as to have a trading loss for that year and set it off against that investment income and by that means increase its trading profits for another year and, for that year, to re-qualify itself as an overseas trade corporation. There are substantial arguments for saying that a company should be allowed to elect whether or not it should be an overseas trade corporation, but those arguments at once lose force if, at the same time, a company is to be able to change its status from year to year. If an Amendment of the kind asked for is to be accepted, I would respectfully suggest that that of the right hon. and learned Gentleman the Member for Kensington, South (Sir P. Spens) is the better one, in that it proposes that once the option has been made it cannot subsequently be changed.
As the Bill as a whole is drawn at the moment, I do not think that that object would be achieved, because a company would still be able, by those other means of disqualifying and requalifying itself, to change its status, quite apart from any question of option. There is an argument for saying that in the initial year, when the question first arises, a company should be allowed to choose but, if that right is to be given, the choice should be final and once for all. It is no good accepting such a proposition if, in fact, by repeated disqualification and requalification the intended limitation imposed by making the election final is to be avoided.

The Financial Secretary to the Treasury (Mr. J. Enoch Powell): My hon. Friend the Member for Essex, South-East (Mr. Braine) has drawn attention to a number of cases in which a company would be disadvantaged by overseas trade corporation status, and the hon. Member for Lewisham, North (Mr. MacDermot) added another to the total. There is, therefore, a prima facie reason why a company should not be compelled to assume this status against its will.
I would agree with my hon. Friend that it is not a sufficient answer to say that there are plenty of opportunities provided in the Bill for self-disqualification, which would enable a company to put itself out of court. I agree both with him and with the hon. Member for Lewisham, North that that is not an appropriate way of dealing with the problem which these Amendments raise, but whether those methods of self-disqualification can be used advantageously to the company but improperly from the point of view of the provisions of this Part of the Bill is a point which will arise on a later Clause, and it is not germaine to these Amendments.
It follows, therefore, that a method must be sought which will enable a company to exercise its option where there are solid and genuine reasons for it preferring to be in or out of overseas trade corporation status, but which will, on the other hand, prevent companies from hopping in and out according to the circumstances of their trading in a particular year, and purely for the purpose of a transitory and evasive tax advantage.
My right hon. Friend accepts the purpose behind these two Amendments. On the other hand, it will, as I have shown, be necessary to draw any Amendment in such a way as to strike a mean between those two extremes. My right hon. Friend proposes to put on the Paper for the Report stage an Amendment designed to have that effect. In the meantime, I hope that my hon. Friend the Member for Essex, South-East will feel able to withdraw his Amendment.

Mr. Mitchison: I am glad that the Financial Secretary to the Treasury has seen that there is some substance in these two Amendments, or in the ideas behind them. I am afraid that I must add that the discussion which we have had, the existence of these Amendments on the


Order Paper, and the arguments brought forward in support of them, show up the extreme weakness of the whole scheme of the Bill, and I trust that it will be possible to remedy it. It may be an inherent weakness. I cannot quite adopt the easy course of the Financial Secretary and say that we must look at the matter apart from what he called the "self-disqualifying" possibilities.
It is clear that by the Clause which follows—to which I do not propose to refer in detail—it is fatally easy for a company to move in and out of overseas trading corporation status. It can begin, and then discontinue the status when it suits it and trade in the United Kingdom. If it is engaged in the type of export trade mentioned in subsection (2) it can break one or other of the conditions in that subsection temporarily. It will, as I read the Bill, then cease to be an overseas trading corporation for the moment, but if it behaves itself and does not break the conditions again it may resume the status later; and so on and so forth.
If one goes carefully through the Bill I believe one will find many other possibilities which illustrate the extreme fineness of the line to which I believe I referred in criticising the then Chancellor of the Exchequer's suggestions last year, and to which I find the Board of Inland Revenue has also referred in its general criticism of the difficulties of proposals of this kind. That being so, it seems very much better—if a company can hop in and out of this status by performing operations connected, for instance, with Clause 21—that the question of getting in or out should be settled once and for all, and in the sort of terms suggested in the second of the Amendments that we are discussing.
I am not altogether happy about the Amendment of the right hon. and learned Member for Kensington, South (Sir P. Spens) because it does not make clear what
the first year in which it so qualifies
is. It begins by saying:
A company which would otherwise qualify"—
which presumably means that it does not qualify—to do something
before the end of the first year in which it so qualifies"—
I am glad to see that I have the strictly limited assent of the right hon. and

learned Member for Kensington, South. I gather that the intention of the right hon. and learned Gentleman and his Friends, and the intention accepted by the Government in this matter is that any company, having once contracted out of its status of overseas trading corporation, should remain out of that status.

Mr. Powell: Normally.

Mr. Mitchison: The hon. Gentleman says "normally". We shall have to see what the Treasury Clause means exactly. I take it that the Financial Secretary has in mind that there might be changes of circumstance so considerable as to justify a further change. We would not wish to commit ourselves to that until we know exactly what is intended. On this side of the Committee we are in agreement with the intention of the second of these Amendments. We make that distinction because we think there ought to be a final option. We welcome the Government's acceptance of it.
I cannot refrain from repeating before I sit down that the necessity for a provision of this sort really arises from the fact that the scheme of the Bill is so widely drawn, and perhaps necessarily so, that we have to do something of this sort if we are to avoid the kind of self-immolating or self-supporting manoeuvre which I have already mentioned and which I am sure none of us wants to see embodied in the Bill.

Mr. Stevens: I did not intend to make any observations on the Amendments, but the very important point raised by the hon. and learned Member for Kettering (Mr. Mitchison) to which my hon. Friend the Financial Secretary to the Treasury answered "normally" has caused me to do so.
The point raised by the hon. and learned Member for Kettering, as I understand it, was that should an Amendment on the lines of the second of these Amendments be tabled on Report, allowing a company to opt out of its overseas trading corporation status, it was a question whether at any time in the future that company should be able to qualify for overseas trading corporation status. The Financial Secretary to the Treasury said that normally that would be the case.
That would be unfortunate. My hon. Friend the Member for Essex, South-East (Mr. Braine) pointed out the cases that exist in considerable number of companies which have accumulated losses available for United Kingdom tax purposes at present but probably not available to be set off against profits in accordance with the taxation statutes in the countries in which they are trading. Accumulated capital allowances act in exactly the same way. That such companies should be permanently disqualified as overseas trade corporations would inflict an intolerable handicap upon them which would not be removed if the second Amendment were accepted and they were able to opt out as overseas trade corporations on the basis that at no time could they subsequently qualify again.
I hope that when my hon. Friend used the word "normally" he did not use it in the narrow sense but in a very wide sense to cover the kind of case I have in mind.

Mr. Cronin: The Amendments draw attention to what might be a very unhealthy discrimination, of which certain firms could take advantage. I am glad to hear that the Financial Secretary will do something about the matter. I hope he will make sure that the Amendment to be produced on Report will be very clear and will avoid the abuses which will arise in attempting to assist individual cases. I know that individual cases make bad law and so it is important to see that such legislation is tightly drawn.
8.0 p.m.
It is quite obvious that the whole of Part IV of the Bill will make possible very widespread and massive attempts at tax evasion. [An HON. MEMBER: "No."] It is no use an hon. Member saying "No". He knows perfectly well that the most acute and subtle brains in the square mile of the City of London will be very carefully focused on Part IV of the Bill with a view to increasing their profits. If the Amendment suggested by the hon. Member for Essex, South-East (Mr. Braine) is accepted without very stringent qualifications, there will be an enormous increase in the opportunities to avoid tax. That should be borne in mind by the Financial Secretary.
This would cause an immense amount of work for the Inland Revenue Department. That Department already has more than it can cope with, but there will be an enormous increase in its work as a result of Part IV of the Bill, and if we incorporate this Amendment it will be more difficult still. It has been a difficult matter to define an overseas trade corporation, but if we introduce an Amendment in which the definition depends on the company itself no one will know where he is.

Mr. Braine: May I say how delighted I am at the way in which my hon. Friend has accepted the representations I have made. Some most interesting and valid points have been made on both sides of the Committee. In view of the assurance my hon. Friend has given, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Anthony Hurd: I beg to move, in page 15, line 15, at the end to add:
(3) A company incorporated by Royal Charter to develop overseas resources shall qualify as an overseas trade corporation in respect of all activities within the terms of its charter.
This Amendment concerns the six pioneer companies operating under Royal charter, all of them in the Commonwealth and Empire. The Royal charters under which they work place obligations on them as well as conferring privileges. The companies are: the British South Africa Company, the Hudson's Bay Company, the British Cotton Growing Association, the Van Diemen's Land Company, the Australian Agricultural Company, and the Falkland Islands Company. Let me declare my interest. I am a director of the Falkland Islands Company. It is in a British Colony very much alone off the coast of South America.
I will quote the objects of this company as an example of what I mean by saying that obligations as well as privileges have been conferred by the charters. Its objects are:
1. To support in efficient force an establishment for taming wild cattle, requiring a large addition to the stud of horses and an increase in the staff of gauchos.
2. To increase largely the supply and stock of sheep on East Island.
3. To establish a general store.


4. To provide, if possible, regular postal communications with the Islands and the Mainland, as well as with Europe, an advantage which the Colony has not enjoyed.
Those are the terms set out in 1852 at the time of the granting of the charter. The company carries out those services today and means to continue to honour all the obligations as well as to enjoy the privileges of its Royal charter. Possibly, the company could break its bargain and merely carry on with sheep farming, relegating to a subsidiary the services of shipping, insurance and store-keeping. Those services do not make any profit. It is hard to see any reasonable commercial future for a subsidiary of that kind which would make a continuous loss unless the charges to the islanders were raised considerably above the present level.
It has been in the interests of the Colony as a whole that the privileges and obligations of the Falkland Islands Company should have been very closely linked in the Royal charter. One has carried the other. The purpose of this Amendment is to ensure that the chartered companies—I have given the facts about one which I know best as an example—and the communities they serve shall not be placed at a disadvantage in relation to other concerns which have no shipping and other services as an integral part of their functions. Those other companies without shipping or other obligations can, of course, readily benefit as overseas trade corporations under this Clause.
I am sure, from what the Chancellor and the Economic Secretary have said that they do not intend to disadvantage the charter companies in any way. They are, indeed, the pioneers of Empire development and it would be quite wrong for this Committee to do anything which would put them at a disadvantage. Will my right hon. Friend please allow them to become overseas trade corporations to carry on their full functions? That is what they would like to do. If he cannot see his way to do that, will he devise some other means which would recognise that they are just as worthy of, and indeed entitled to, tax relief as other companies which can readily qualify as overseas trade corporations?
This afternoon, the Chancellor and the Economic Secretary have declared that

the Government have no desire to meddle with the structure of companies unless that is necessary to prevent evasion of tax. There is really no possibility or chance of tax evasion in these cases because Royal charter companies certainly would not risk their status and reputation by any doubtful activities. They are very proud of their Royal charters. Most of them are more than a hundred years old and certainly would not do anything which would be doubtful in the eyes of the British Treasury. They are in the Treasury's tax net and there would be no possibility of escaping.
I ask the Chancellor to allow them to have the benefits of overseas trade corporation status so long as they carry out honourably, fully and conscientiously the obligations of their Royal charters. I am sure that is to the good of the Commonwealth and Empire and cannot be to the disadvantage of taxpayers in this country.

Mr. Mitchison: Although I sympathise with the good intentions of the hon. Member for Newbury (Mr. Hurd), I hope that the Government will not accept this Amendment. I think it goes much too far.
I do not know much about the Falkland Islands Company. I do not know what profits it makes, or where they go. I do not know how it carries out its functions. Indeed, I know no more about it than I have heard from the hon. Member just now, but he mentioned the names of a number of other companies, some of which are very well known.
If I may take perhaps the most obvious example—not because I think any better or worse of that particular chartered company than of the others—the Hudson's Bay Company, that is an exceedingly prosperous concern. It carries on trading and makes very considerable profits. Its shares are the subject of very intensive dealings, both across the Atlantic and on the Stock Exchange here. There is no doubt that, although it is a very old chartered company with a very long and, I think, a distinguished history, it is, none the less, a trading concern and a very successful one. I see no reason why because it happens to originate in a Royal charter it should be treated any differently from any other company. No doubt it serves some good


and useful purposes in relation to Canada, but I think that if the hon. Member looked carefully through the Stock Exchange lists or lists of that sort he would find little difficulty in finding parallels—perhaps smaller in that case—in companies which were not incorporated by charter.
For instance, he mentioned one estates company which happened to be incorporated by charter. There are others not so incorporated. It does not matter for this purpose. We might take the banks as another example. Some are incorporated by charter and others are not. It is no foundation for a taxation distinction to give a special advantage to companies incorporated by charter, and I take slightly amiss the reference to meddling about with companies' affairs, although of course that reference was not made by the hon. Member for Newbury.
This Bill, as already stated from the Government Front Bench, will result in quite a number of companies considering whether they ought not to hive off subsidiaries in some form or another. We are not on the Question, "That the Clause stand part of the Bill," or on the general principles of the Bill, but if that be so for companies incorporated in the ordinary way, is there any reason why chartered companies should not occasionally consider the same thing?

Mr. Hurd: Under the terms of their charter they are bound to carry out certain services, and it is not at all clear that they would not be breaking their charters if they tried to hive them off to subsidiaries. That is the point.

Mr. Mitchison: My answer to that is that they had better get their charters amended. That is not impossible.
Leaving that aside for a moment, I do not think that for half-a-dozen companies, incorporated in a particular way, we ought to make special tax provisions—and that is what this comes to. It would enable the Hudson's Bay Company to continue to carry on extensive business, as it does, in merchanting furs, for instance, in the City of London, and, at the same time, unlike any other company, to get such advantages as there are in being an overseas trade corporation. It would add a name to the charter company which would be a complete

misnomer, having regard to the company's activities.

8.15 p.m.

Sir John Barlow: I had no intention of speaking, but I should now like to add a few brief words to the debate, especially in view of what has been said by the hon. and learned Member for Kettering (Mr. Mitchison). He takes the view that these chartered companies, of which there are about six, should not be treated in any way other than is an ordinary joint stock company. In fact, the two categories are totally different and we cannot compare different things in the manner in which the hon. and learned Member has suggested.
The Falkland Islands Company, with which I have no connection, has taken on with its charter very considerable obligations of transport and of helping to run the islands. Any ordinary company would either have increased its transportation charges enormously or would have cut the business out altogether, but owing to the fact that this company was inaugurated under Royal charter it carries out its obligations. It has great responsibilities and it takes them very seriously.
If the hon. and learned Member wishes to treat all companies in the same way it will entirely break up the old chartered companies, which were the earliest pioneers in colonial and Commonwealth development. That would be a great pity from many points of view. They carry great weight and have great traditions, and it would be a great loss to the countries in which they operate.
For that reason, I hope that the Chancellor will look upon the Amendment kindly and will help these companies to continue their present entity rather than have to try to hive off and to break up the essence of the Royal charter given to them so many years ago.

Mr. Mitchison: Is the hon. Member seriously suggesting that if the Hudson's Bay Company does not succeed in becoming an O.T.C. it will "go broke"?

Sir J. Barlow: Nothing of the kind. I was applying my remarks in particular to the Falkland Islands Company and in a general way to the other companies.

Mr. Birch: My hon. Friend the Member for Newbury (Mr. Hurd) put his case


very persuasively. It is certainly true that some chartered companies, at any rate, are put in a special difficulty under the terms of their charter because certain obligations are imposed upon them which it is not very easy for them to hive off and which they must not fail to undertake. They have certain legal and practical difficulties which may not be present for other companies.
At the same time, as the hon. and learned Member for Kettering (Mr. Mitchison) said, if it can possibly be avoided it is most undesirable to create special classes of companies when we are dealing with O.T.Cs. The whole object of the Bill has been to draw the limitations and definitions as accurately as possible. My right hon. Friend has studied this matter, but it raises extremely complex legal and other points and he has not yet completed those studies. As at present advised, he is not entirely convinced that those legal and other difficulties cannot be overcome. He has asked me to say that he is studying this matter with full sympathy and will give every assistance he can in sorting out these difficulties.
Meanwhile, we cannot accept the Amendment as it stands, but I can assure my hon. Friend that we are giving this very complex and difficult problem sympathetic consideration.

Mr. Hurd: In view of what my right hon. Friend said, I should like to withdraw the Amendment so that, if need be, we may have a further discussion on Report. I hope that will not be necessary. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, That the Clause stand part of the Bill.

Mr. Gordon Walker: This is the first chance we have of discussing some of the very important principles in the Bill, because they are contained in the first Clause of this part of the Bill. Frankly, since we have been able to study in very great detail the implications and terms of this part of the Bill—and we have studied them in very great detail—we have turned more and more against this way of benefiting overseas trade. We are more strongly opposed to it than we were in the earlier stages of the Bill.
One reason is that we have been able to study the evidence given to the Royal Commission by the Inland Revenue, which was not available when we were discussing these matters earlier. That evidence, in the three memoranda which have been placed in the library, is devastating. It makes a great administrative case against this way of helping overseas trade. It says, and, I think, establishes, that it will open the door to tremendous avoidance and evasion.
We are also very doubtful whether, as a country, we can afford this amount of extra overseas investment at the moment. If we can afford it, there are better ways of using it. I hope that neither the Chancellor nor the right hon. Gentleman will use the cheap argument that we must invest in the Commonwealth and so forth. We say that whatever money there is for this sort of encouragement of overseas investment should be concentrated in the Commonwealth. We are much more for the Commonwealth than the Government are in this Bill. The Government are spreading the trade over the whole world, we are trying to concentrate it, as will appear from our new Clause, in the Commonwealth.
As many of my hon. Friends have said in our earlier debates tonight, we do not like the radical departure from the basic tax principle of this country, that there should not be discrimination between taxpayers. There is a great deal of force in the view of the Board of Inland Revenue laid before the Royal Commission on the Taxation of Profits and Income, in Memorandum 47, paragraph 14, where the Board says:
If the national interest demands that assistance from public funds should be given to particular industries, it should be done by means of some form of direct aid and not by way of relief from the general burden of taxation, which would benefit most those who make the biggest profits.
That seems to hit the nail completely on the head. The Government have chosen the way which the Board of Inland Revenue quite rightly says is wrong. The Board says that if we want to give this sort of aid it should be given by direct Government aid, if necessary by subsidy. That is better than this elaborate Bill with these immense provisions which will not stop avoidance, but which will provide much work for company lawyers and others.
We are very worried at what we have been told about the cost of these provisions. It has been very unsatisfactory. We have been more alarmed since we have had access to the memoranda of the Board of Inland Revenue. In October, 1952, the Board estimated that this sort of provision would cost between £90 million and £130 million. In June, 1954 a slightly amended scheme, which is admittedly a little nearer the Government's present scheme, was estimated to cost between £55 million and £65 million, but the Board made it clear that that was an under-estimate and that the information available to it was not sufficient for it to make a clear and proper estimate. It is significant that in making that estimate the Board was assuming that Profits Tax would be charged. We have already been told tonight that the exemptions from Profits Tax amount to about one-fifth of the Government's estimate of the cost.
In making its estimate in June, 1954, the Board of Inland Revenue assumed that Profits Tax would be charged and made it clear that it was not allowing for any large scale rearrangement of companies which are not now O.T.C.s making themselves into O.T.C.s. What estimate have the Government made of the extent to which companies which do not now qualify as O.T.C.s will reorganise themselves to be that? The Chancellor must have made some estimate of that to reach his figure of £35 million.
It is rather interesting that the present Prime Minister, when Chancellor of the Exchequer, estimated that a proposal of this sort would cost £75 million. This year's Chancellor has said that it will cost £35 million. In the light of these varying estimates, we are extremely suspicious of an estimate as low as the Chancellor's present estimate. It was very vague when he gave it. He said that he could not give precise figures and he used the phrase "something over £35 million". We must be given a basis for these calculations before we can be asked to accept that. Unless we are given more precise information, we will have to assume that the cost will be much more than £35 million in a full year.
The Chancellor and the right hon. Gentleman have made a great deal of play with foreign competition to our overseas trading companies. Although there

is a little in that argument, it has been driven much too far. As I said earlier, the idea that our overseas companies are meeting very unfair competition all over the world has been greatly exaggerated. In paragraph 15 of Memorandum 47 the Board of Inland Revenue made it clear that only three countries really come into the question, France, Switzerland and Belgium. It is only those whose foreign companies are really in a better taxation position than ours. Belgium does not get 100 per cent. remission of taxation as British O.T.C.s will get, but only 20 per cent.
British companies will now be the most favoured overseas trade corporations in the world and, of course, the arguments we have been using in the past, that we must make ourselves better because foreign companies are in a better position, will now be used by foreign companies. They will say that British companies are in a better position and will eventually get increased tax remissions, so that we will not be much better off at the end of the day than we now are. We will get a small jump ahead and the arguments used in favour of doing this will be applied equally well in foreign Parliaments. They will say that United Kingdom companies competing with them in overseas markets have a terrific advantage and there will be a great tendency for them to get similar advantages, so that this advantage will be temporary and disappearing.
It is argued that United Kingdom companies have to face unfair compeittion abroad from foreign companies. Does not this argument apply equally well at home in Britain? The ordinary British company here is competing with American, Belgian, Italian, and Swiss companies. According to this argument, they should get exactly the same tax benefits for competing in Britain as far competing in Jamaica or anywhere else. If it is said that our taxes are so high that when we come into competition overseas with foreign companies which get tax remission we are at a disadvantage, it must be as true of an English company selling motor cars in England against a subsidised Belgian company as of a British company selling motor cars in Jamaica against the same Belgian company. What this argument of unfair competition means is that United Kingdom taxation is too high, but that argument applies


as much to home trade as to overseas trade.
The Government have proved too much and are now saying that all companies which have to sell in competition with foreign companies, whether at home or abroad, ought to be given remission of Income Tax. There is otherwise no logic in the argument. There is just as much competition from a Belgian company competing with a company here at home as with a Belgian company competing with one of our companies in Jamaica.

8.30 p.m.

Mr. Cyril Osborne: Surely it is more important, other things being equal, that we should sell in the export market rather than at home.

Mr. Gordon Walker: I suppose that the hon. Member for Louth (Mr. Osborne) wants all our home trade to be in foreign hands and all our foreign trade to be in our own hands; that would be the logic of what he said. Of course, exactly the same argument would apply for giving this concession at home as for giving it abroad.
There was a very interesting letter in The Times a few days ago, written by a Mr. Newton Jones, who described himself as wholly engaged in export. As an exporter, he made the point very clearly:
Although I am engaged solely in export. I think it a very bad principle for the Government to discriminate between the home and the export trade…To say that capital invested in operating, for example, a store somewhere in Africa need not pay tax but that capital invested in manufacturing in the United Kingdom shall pay tax seems altogether against the national interest, and to be quite inequitable…
That seems to be a very powerful argument, coming from a man himself engaged in export and, therefore, having every interest to take his own view against the national view. He makes it unanswerably clear, I think, that, in the national interest, this is a stupid thing to do.
From the administrative point of view, we find the whole idea of overseas trade corporations quite impossible. The Board of Inland Revenue, in its memorandum, makes quite clear that the thing would be absolutely wide open to evasion. All the things the Board said would happen the Government have ignored, and they have gone sailing ahead. The Board of Inland Revenue has said that one can try

to block up the loopholes but one will not succeed. Yet the Government have tried to do just that; they have pretended to block up the loopholes.
In discussing later Amendments, we shall rely extensively on the memorandum of the Board of Inland Revenue, and I do not, therefore, in this part of our debate, want to deal with it in detail, but there are two points I wish to make. First, the Board of Inland Revenue in its Memorandum 47 shows that these new overseas trading corporations will open the way for a good deal more personal tax dodging.
The Board says that any overseas income spent abroad by directors, officials, etc., of overseas trading corporations on such things as holidays—personal expenditure, that is—will, in fact, come out of tax exempt income. These people will go overseas, get some undistributed profits over there and spend it on holidays, that money being wholly tax exempt. Far too much of this sort of thing is happening already, and there would be a great deal more of it.
The Board sums up its views in paragraph 24 of Memorandum 47, saying:
It is to be feared that the adoption of a remittance basis for the charging of profits deemed to arise abroad"—
which is exactly what this Bill does—
would, in the absence of complicated anti-avoidance legislation, reduce the rôle of the Revenue in these cases to little more than the receipt of voluntary contributions by way of tax".
That is the summary of a long argument of the Board of Inland Revenue which we shall deploy later. The thing is made very clear, and that is one of the reasons why we are extremely doubtful whether this is the right thing to do.
We are now more than ever convinced that, as a result of the Bill, we shall be getting too much overseas investment. We cannot afford this sudden increase in overseas investment. No doubt the Treasury Ministers saw the leading article in the Financial Times today, which is very apt to our debates. It is there said:
Britain has only a limited supply of capital and very heavy demands upon it…The persistent shortage of capital for internal investment—of which the fall in the gilt-edged market is one symptom—makes it difficult to see how this already large external investment could in fact be increased.


The Government are now preparing to increase it by £35 million a year or more.
In particular, the existing holders of the sterling balances might well be critical if sterling were jeopardised by a policy of over-investment abroad".
This is, in our view, just what the Government are running the risk of doing.
I hope that the Financial Secretary will really face this. It is not enough to say that it is a calculated risk. There is now much evidence leading to the conclusion stated by the Financial Times, that we are already investing too much abroad, before this great new injection or increase of overseas investment. From 1953 to 1956, we were investing overseas about twice our balance of payments surplus in that period.
Of course, we can in the long run only invest a surplus, we cannot create something to invest overseas by passing a Bill about it, but we can by passing a Bill abstract capital from home investment and send it abroad instead, and thus reduce the real and vital source of wealth production in this country. This investment can have this bad effect, as the Financial Times says, upon sterling balances and holders of sterling.
It seems to be common ground that, at any rate, the first effect of this Bill will be an adverse one upon our balance of payments. The Chancellor said that himself in the Second Reading debate, when he said that the initial effect would be adverse to our balance of payments, because the effect of this Bill would be that money from overseas which had been available for buying imports will not be so available when it becomes an Act, and because profits will be remaining overseas and will not be brought home, or not permanently brought home. It is, of course, true, theoretically, that in the end this over-investment abroad may drag some exports after it.
It may happen, but the real question we have to face when we are working on a very narrow margin is whether we can afford this initial loss which the Chancellor has talked about. There is really no evidence that our balance of payments position is rapidly improving and that we are getting a large and sudden increase in the genuine surplus to invest, or that any of the other indices, like the gold and dollar reserves, are shooting up. There

is no evidence that we are in a position to face this initial loss on the balance of payments that will, as admitted by the Chancellor, be the consequence of this part of this Bill.
I do not think that at this time we can afford such a risk on this scale. Therefore, we are very doubtful indeed whether we have £35 million to spare for this purpose. We are inclined to think that the cost would be very much more than £35 million, for the reasons I have given, but even if it is only £35 million—it is very doubtful if we have it to spare, but if we have got it to spare—we do not think this is the right way to use it.
We think that it would be much better, in accordance with the new Clause which we have put on the Notice Paper, to direct it to the Commonwealth by means of investment allowances for investment in the Commonwealth. That would be much simpler, and there would be no tax evasion by remitting money home and distinguishing between shareholders and capital left overseas. That is one reason, of course, why the Government have not done it. There would be no pickings for shareholders in it. This is the direct and concentrated way of helping the development of investment in the Commonwealth.
We in the Opposition cannot tell how much we have to spare, but whatever we have to spare in this field for increasing overseas investmnet we say should go direct into investment in the Commonwealth. If the Chancellor, as he will do, insists on doing it his way, which we do not like, we have a duty to proceed from that point and try to make the Bill less bad, and we shall, later, be moving Amendments for scaling down what the Chancellor wants to do in discriminating between one kind of overseas trading corporation and another, but this is very much a second best.
We do not really like this way of doing it at all, and we prefer a wholly different way. We think that this is something which the Chancellor has rushed into without full thought about its very grave implications for our economy. We are, therefore, hostile to this way of doing it, and will do our best to try to make it less bad.

Mr. Chapman: Before I come to my main comments, I should like to ask the Financial Secretary a further question for information, which, perhaps, he can give


when he begins his reply. My right hon. Friend the Member for Smethwick (Mr. Gordon Walker) has asked for figures about the cost of this concession. I was not sure how he wanted those figures broken down. One way in which it would be helpful to have them broken down would be to have an indication of how much of the total concession is likely to be taken up by exporting companies which now hive off subsidiaries and simply begin to sell their exports through subsidiary firms, getting a tax concession. This is a tremendously important point and I hope that the Treasury will give us frankly what estimate it has made of that section of the concession.
My second question concerns the organisation of the Inland Revenue to cope with this enormously complex piece of legislation. When, at an earlier stage, the Financial Secretary was resisting a tapering Amendment concerning child allowances, he said that one of the reasons for resisting it was that it would involve a great increase in the staff of the Inland Revenue Department.
We want to know what this fantastic complication in Part IV of the Bill will mean to the Inland Revenue and, in particular, what will happen about the handling of these cases. Will the Inland Revenue trust its local inspectors to look into the matter? Will there be a special head office department to do it? How is the Inland Revenue to cope with the whole mass of work that this concession involves? I have a feeling that when they are released, the figures of the amount of work that this concession involves for the Inland Revenue will be phenomenal. It should be known to what extent we are undertaking all this to allow the concession to companies operating overseas.
Earlier this afternoon, when we were debating the Profits Tax, the Chancellor's reply was simply to wave the Union Jack and to say, "We just want to encourage British trading overseas. Is not that good enough for you all?" He raised the strains of "Land of Hope and Glory" in the ears of his hon. Friends behind him, who rose and cheered, and the whole thing went through without any basis of argument whatever.

Mr. Roy Jenkins: It was simply rhetoric.

Mr. Chapman: As my hon. Friend points out, it was a matter of rhetoric which forced it through on that occasion. That was the substitute that was offered for argument.
I hope that when we get the reply on the Clause, we will be treated to a little more consideration and that it will he realised on the Government Front Bench that we are approaching this matter in a judicial sort of way, trying to weigh the balance of argument on the one side and on the other in this concession, and that when we do that we deserve a sympathetic, careful, argumentative reply by the Chancellor and no more mere waving of the Union Jack.

Mr. Osborne: There is too much rhetoric from the hon. Member.

Mr. Chapman: Having said that, let me come to the main consideration involved in the Clause. We started our approach to Part IV of the Bill with a certain amount of apprehension. I would not put it any more than that. We had in our memories the debates of last year and previous years on the difficulties of companies operating overseas and we were predisposed sympathetically to something which would help them.
The important point is that the sympathy was bounded sympathy. It was carefully bounded to certain points of agreement. We agreed that help was particularly needed for British companies operating overseas so that they should not be subject to handicaps, particularly in the Commonwealth, from which competitors are free. I think that in that sense we were anxious to see that, as far as possible tax should not be levied on profits which were being ploughed back, and also that tax which discourages a flow of outside capital into British concerns, particularly in the Commonwealth and to some extent in other countries, should not be levied.
8.45 p.m.
Secondly, we were agreed with hon. Members opposite about pioneering companies and about some of the difficulties that arise from our levels of taxation on them. This was summarised very well by the Royal Commission in paragraph 659 when it said that
…if another taxation jurisdiction, the country of residence, exacts a levy on the profits which only becomes the larger as the


local tax is the smaller, the local government is likely to feel with some resentment that it is not master in its own house and that there is no good reason why the United Kingdom Exchequer should be fed with tax out of profits provided by the local consumer.
I am sure that we agree that where a Commonwealth country, in particular, is giving a tax concession to encourage the development of roads and railways or anything else, we should not nullify its generosity by our taxation system here, leaving that country feeling, as the Royal Commission says, that it is hardly master in its own house.
I think that that is the agreement between the two sides of the Committee, but the scheme as set out in Part IV of the Bill goes so very much further and is now so effectively demolished—I put it as strongly as that—by the evidence of the Inland Revenue to the Royal Commission that we begin to see the differences between the two sides of the Committee. I cannot speak for all my hon. and right hon. Friends but I think that I certainly speak for a great many of them when I give half-a-dozen reasons why it is that many of us have moved frankly to considerable hostility towards the method employed in Part IV.
The first point is one which has been made already—the principle of equity. It is true, and it cannot be said too often that, as the Inland Revenue says, equity and efficient administration alike require that profits should be taxed simply as profits. This is the first time that we have departed from that principle of equity as between trading company and trading company, and the Inland Revenue says that it destroys one of the main pillars of our taxation system. It is a considerable breach to have made.
The Chancellor has taken it much further in the Bill. He has made it an enormous breach and not a simple breach to remedy small disadvantages. When the Chancellor has made that breach and has taken it as far even as the Profits Tax I think that we on this side of the Committee are justified in repeating constrantly the dictum so rightly stated by the Inland Revenue that the principle of equity here is very important indeed. We should realise how gravely we are breaking it.
Secondly, we must look again at the question whether we can afford this bonus

on the export of capital from this country at the moment. We should envisage the £120 million to £200 million of overseas investment which we have been having in recent years and which, as the Royal Commission points out, is more than the balance of payments surplus for the years in question since the end of the war. It is a very grave thing to be going as far as that. But it is not just that. We are encouraging it by this Bill to go on to even greater lengths, and that must give some reason for pause.
Reason for further pause is given by a third point which causes us to have doubts about the Clause. Under this present Government, with no real planning of our investment in this country, it is likely to mean that a great deal of that investment which will go overseas will, willy-nilly, be at the expense of investment at home. That is one of the gravest difficulties, as is pointed out by the Royal Commission in its Report, namely, that in encouraging more overseas investment we are in grave danger of discouraging it at home. As it states in paragraph 652:
There is indeed a danger that if we endeavour to expand our overseas investment unduly, we shall do so at the expense, not of home consumption but of home investment; but it is on investment that is ranked as home investment that our ability to produce for export depends.
Therefore, as the Royal Commission points out, if we encourage unduly investment overseas at the expense of investment at home, we are to that extent reducing our possibility of exporting in future by taking away the very ability to produce at home those goods for export. Those words of the Royal Commission are very grave ones indeed and should make us pause a while before going as far as the Bill does.
I have chosen half a dozen points at random. One could go on at great length showing the defects in this part of the Bill. My fourth point is that, although it has been said again and again that our companies are penalised to a greater extent than those of other countries, that is by no means the case. It is not the position that our companies are in such a terrible position compared with the companies of foreign nations. As the Inland Revenue points out in its evidence on page 497, the fact is that the United States, with a tax on company profits of 52 per cent., taxes the world profits of


its companies, with only certain relatively minor concessions. Western Germany, with a tax of 60 per cent. on companies, takes a similar line. It does not have any concession at all. My right hon. Friend read this part of the Report:
…of countries that may be significant for the present purposes, those which treat profits earned outside their territory more favourably than domestic profits are France, Switzerland and Belgium.
There are one or two others, but they are of no great importance in world trade.
To some extent we have been led up the garden on this point. There has been a great sentimental, emotional rise of pressure from the other side on these matters, based on the assumption that our companies are so much worse off than those with which they are competing. That has been totally overstated and I think that the view of the Inland Revenue Memorandum explodes it, and again should make us realise how great is this concession that we are now granting.
My fifth point is that the balance of payments is not being helped by the concessions. Indeed, to some extent, as the Chancellor has admitted, it is being made worse. This is, so to speak, a concession which encourages an expansion of exports in future years, but for the present year it is a positive disadvantage to our balance of payments surplus. My own view is that if we are to give any concession at all, in this year it should be a very limited one because our balance of payments surplus is sufficiently precarious for us not to take any unnecessary risks. It would have been far wiser to be a little less generous.
Lastly there is the point about evasion. One need only read the enormous length to which the Bill goes in trying to block the loopholes to realise what a tax lawyer's paradise this will be.
The Inland Revenue has already stated that we have only to look at the way in which the tax on remittances to this country is being avoided to realise how many loopholes will be found by this piece of legislation to avoid the intentions of the Bill. It instances one or two cases which have, I think, been decided against the Inland Revenue, leaving a considerable amount of avoidance which has not yet been stopped. It simply says,

in a very warning number of sentences, "Watch for the loopholes which will now be developed in this piece of legislation."
Taking these half dozen points, together with those made by my right hon. Friend, this is a pretty formidable expression of doubt, to put it no higher, of the generosity of the Government in this part of the Bill. It is quite right for the Inland Revenue to say that the better way would be to deal with this matter direct. If we want to encourage these things let us do it by some form of special subsidy or special treatment, but do not let us start fiddling about with tax concessions which can lead only to loopholes, evasion and inequity as between company and company; or, secondly, do it in the form of the new Clause which we have ourselves adopted, channelling it mainly into the Commonwealth and restricting it; taking it again outside the whole sphere of Income Tax and Profits Tax concessions, putting on an investment allowance which is capable of direct checking and opens no loopholes for evasion, and which is clear and precise. One of those two ways would have been the more sensible.
I regret in many ways the division which has occurred between the two sides of the Committee on this matter. My own view is that this is pre-eminently the sort of thing in our tax law which ought to have been the subject of agreement between the two sides of the Committee. It ought not to be something which, if it is once written into our tax law, will come and go with succeeding Governments. We should not need to stand here and say that there is very grave doubt whether a Labour Government would continue it. It could mean an enormous upset for firms that take advantage of it and organise their affairs to benefit from it if, in fact, a Labour Government is bound, because of careful arguments which have weighed with us, to take away the concession altogether. It would have been rush better to try to find some basis of agreement between the two sides of the Committee.
I hope that we shall give a fair warning about this part of the Bill and particularly that part of it which is enshrined in this Clause. I think that that warning ought to be given from the Treasury Bench as well as from my own


Front Bench to overseas trade corporations, to parent companies and holding companies. We ought to say quite clearly from the House of Commons right now that if this degenerates into a racket of tax evasion by companies, which it could quite well become, the House of Commons will almost unanimously withdraw the whole concession and rewrite the tax law in some other way to give them the help they need.
They should be told quite bluntly that we are doing this very suspiciously, trusting them a great deal to play the game and not to use every Clause, line and word as a possible loophole for evasion, and that if in fact this concession does degenerate in the way many of us fear, the House of Commons will not be able to stop up all the loopholes but will be bound to withdraw the whole concession. If that went out now from the House of Commons, it would have a very salutary influence on the many firms which are setting their lawyers on to the job of finding the loopholes under the Bill.
As I have said, I regret that this has become a matter of division between the two sides of the Committee. I wish we had reached agreement. It would have been better for the country, for our balance of payments position, for our surplus and for the firms engaged in trading if we had done so. I repeat that when the Labour Party returns to power I shall be one of those pressing immediately for the complete withdrawal of the concession if things have degenerated in the way many of us fear.

9.0 p.m.

Mr. Cronin: The more one looks at Part IV of the Bill the more one finds objection to it. Indeed, the objections are so multitudinous that one has some embarrassment in selecting them for the purpose of speaking, and one must make a selection or one would seriously tax the patience of one's listeners.
The objection that comes first to my mind is that Part IV will be seriously to the disadvantage of British workers. If an overseas trade corporation is set up, it is obvious that its labour will be largely foreign. [HON. MEMBERS: "No."] Surely it must be largely foreign labour, because that labour will be on the spot and one

will not need to meet the cost of transferring labour.

Mr. Remnant: Will the hon. Gentleman explain whether he is referring to the country in which the company is trading or the country in which it is registered? If he is referring to the country in which it is trading, obviously it will employ indigenous labour. Surely the hon. Gentleman would not wish to export labour from this country and leave, say, Africans unemployed.

Mr. Cronin: I imagine that the hon. Member did not hear what I said. I said that it was indigenous labour which would very largely be used by the overseas trade corporation. Obviously, wages will be paid to indigenous labour instead of to workers in the United Kingdom.

Mr. Remnant: If one wishes to grow tea in East Africa and cannot grow it in the United Kingdom, what is the objection to employing indigenous labour in East Africa?

Mr. Cronin: There is no objection at all. If the hon. Gentleman will do me the honour of listening to what I am saying he will appreciate my argument.

Mr. Braine: Is the object of the hon. Member's argument that he does not want anybody to grow tea?

Mr. Cronin: The hon. Member's intervention rather belies his name.
As I have said, wages will be paid to indigenous labour instead of to British workers. In conditions of full employment there will, apparently, be no great harm done, because the wages forgone by British workers will merely be wages which would normally have been paid for some other work done in Great Britain. But there is another aspect which alters the matter considerably, and that is that all increases in real wages are ultimately obtained by increases in productivity.
In the vast majority of cases increased productivity is a direct result of increased investment, so, if we have increased investment overseas, we shall have increased productivity overseas. The overseas worker will get an increase in real wages, but the British worker will not. There will, therefore, be a clear


loss, but if there is also a cessation of full employment here, then, of course, there is an entirely direct loss to the British worker irrespective of productivity.
Though full employment is part of the platform of both parties, it does not depend on the good will of both parties. It is possible that events overseas can cause a very marked drop in employment, and a serious balance of payments crisis might well cause a massive decrease in imports and a resulting massive increase in unemployment here. It would, therefore, be unwise to assume that full employment is guaranteed by the good will of the two parties, and Part IV as it stands does carry a danger to the future standard of living of the British worker, and a potential one if full employment is not maintained.
Further, as some of my hon. Friends have already pointed out, there is a serious objection to Part IV on grounds of equity. It is quite clear that a burden will be taken on the backs of some taxpayers and put on the backs of others. This should not be done lightly. All previous history indicates that justice in taxation is an extremely important principle and one which, if not applied, causes widespread resentment. The disadvantage of taxation, of course, applies not merely to overseas trade corporations, but to home producers' exports, and even to home producers who have to compete against foreign producers sending their goods here. Therefore, from the point of view of equity there is no sound argument at all for the provisions of Part IV of the Bill.
It is very doubtful whether we really can afford to give this very large bonus on the export of capital. As my right hon. Friend the Member for Smethwick (Mr. Gordon Walker) has pointed out, we have a very large problem at present with the sterling balances, from which there have recently been heavy withdrawals. There is already a heavy demand for capital by the sterling area—a demand which we are having great difficulty in fulfilling—so can we really afford to export further capital on a massive scale?
There is a severe danger that the terms of trade will move against us. If Part IV causes a big increase in our exports, but, at the same time, causes falling prices, that will cause the terms of trade to move against us, and that means that any

advantage will tend to be cancelled. I should like the Economic Secretary to bear in mind that the experiment of increasing the United States investment overseas has, so far, caused a real decrease in the demand for dollars. United States overseas investment has not caused increased demand for United States exports, so one has to be rather chary of assuming that we will be on a quite different basis and that, as a result of Part IV, there will be an increase in our exports.
Another matter that has been gone into at some length is tax avoidance. Companies everywhere will try to obtain the maximum possible advantage. There will be massive avoidance to prevent which it will be impossible, as far as one can see, to draw up provisions which are sufficiently tight. Any company can hive off as an overseas trading corporation. The suggestion that the loss of revenue is nearly £35 million is probably fallacious; it is probably very much more.
Another objection to Part IV is that it is likely that countries overseas which are the site of these overseas trading corporations will derive a great deal of help, directly and indirectly, of a technical nature which will increase the profits of their own industries at the expense of our exports. Everyone knows that a large proportion of countries, particularly new Commonwealth countries, are attempting to increase their industries so as to do without our exports. The setting up of overseas trade corporations is very likely to increase the number and quality of industries to be set up in these overseas countries, very much at our expense.
As far as there is any argument at all in favour of Part IV it can only be in favour of a highly selective interpretation. Later, we shall have a new Clause which will go into this question of selectivity and it will be fully debated. I do not think that it would be out of order now to say that to use Part IV in the rather massive, bludgeon-like way that is contemplated at present will have a very mixed effect and that most of the effects will tend to cancel each other out. The argument is primarily in favour of selectivity and not of the blunderbuss of the description which the Chancellor is using.

Mr. Hale: I should think it was an axiom accepted on both sides of the Committee that, in considering any Clause in


a Finance Bill, we have to satisfy ourselves primarily on three or four things.
The first is that we know what it means. The second is that it is a desirable thing to do. The third is whether or not we can afford it and the fourth is whether, in the form in which it is presented to the Committee, it is capable of considerable evasion, avoidance, subterfuge or fraud.
As far as what the Clause means is concerned, we have had a discussion this afternoon, in the course of which I asked a fairly simple question. I was not surprised that the Chancellor did not know the answer but I thought that he would have obtained the information. I asked for specific details of a company whose activity was confined to the buying and selling of property and the drawing of rents from Brazil, and the distribution of dividends here, and which operated through a subsidiary company in South America. The right hon. and learned Member for Kensington, South (Sir P. Spens) interrupted to say that the Clause would not apply to that company at all.

Sir P. Spens: I must interrupt the hon. Gentleman on that point. I said that the Clause would not apply to that company which the hon. Gentleman described as being nothing except a landlord of property in Brazil.

Mr. Hale: The right hon. and learned Gentleman must not hive away from his own observations. This will not do. I did not describe this company in a few short words like that. I described its location, its territory, its climate, its foreign relations and its situation in regard to the United States, to the South Atlantic and to the United Kingdom. I gave its London address, the cost of its shares, the price of the shares, the amount of capital and the number of shares issued. The right hon. and learned Gentleman says I described it so casually thta he misunderstood. I am a sensitive individual. There were moments when one Member of the Committee thought that I was going into the matter at too great length. This is the first time that anyone has complained of my brevity on a Finance Bill.
The question was put, the issue was joined and the argument was there. We sat down, waiting for the Chancellor of

the Exchequer's explanation. He did not give one. The Committee is entitled to know whether this concession applies only to trading companies or whether it applies to all these companies carrying on what to a Socialist—I say this without criticism of a perfectly reputable company—is a slightly anti-social form of activity: the ownership of the land of other people in towns abroad, the extraction of rents and their disemination in the form of dividends in London. I am making no accusation against what no doubt is a perfectly reputable company operating in accordance with our laws, but for anyone who holds my economic point of view it is not one which as a Socialist I regard as desirable or entitled to special encouragement.

9.15 p.m.

Mr. Tilney: Is the hon. Member against all development of cities in the Commonwealth, which can be developed only by land companies?

Mr. Hale: I am coming to that and, if the hon. Member will content himself for a few moments, I am coming to the question of the desirability of overseas investment. At the moment I content myself by saying to the Economic Secretary that I hope he will deal with this point, which I think is important, because if not, I shall seek to catch your eye again, Sir Gordon, during this debate in order to clear up the matter. It would hardly be right in view of the very important expression of legal view by the right hon. and learned Member for Kensington, South that we should pass it without at least knowing whose interpretation is right.
We then come to the question whether such a Clause is economically desirable. The Royal Commission on Taxation had considerable doubts about it. It was divided on almost every issue relating to this matter, but it gave a very clear indication of view in paragraph 653 which says:
There is indeed a good deal of evidence which suggests that this country is already investing abroad more than it can afford, and has been doing so since the end of the war. In a recent answer to a Parliamentary Question the Economic Secretary to the Treasury stated that the new long-term overseas investment of the United Kingdom averaged £m210 annually in the period 1946–53 and £m220 annually in the period 1951–53. After deducting overseas disinvestment and net long-term investment from overseas in the United Kingdom, net long-term investment overseas was put at


£m120 annually for the period 1946–53, and £m180 annually for the period 1951–53. These latter amounts were in excess of the entire surplus on current account in the United Kingdom balance of payments during the same periods, leaving nothing over for the reduction of the short-term debt accumulated during the war or for the building up of currency reserves.
Now I come to the question put by the hon. Member for Wavertree (Mr. Tilney). How had this been financed? How have we been able to invest abroad more than those surpluses? Largely, of course, as far as the sterling area is concerned, it has been done by swindling the colonial balances. The colonial surpluses have been subject to ingenious placing, either by locking them up in the surplus of coffee corporations or of tea corporations and not distributing them. We are in fact very greatly in debt to nearly all our prosperous Colonies and that debt is growing. [t is not good enough to say that overseas investment of itself is necessary and perfectly all right.

Mr. Braine: I am following the argument of the hon. Member with great interest and I think it was perfectly valid at the time that evidence was given to the Royal Commission and the Royal Commission reported. It is perfectly true that in the years following the war, our long-term investment overseas was at the expense of borrowing on short-term obligations and re-exporting capital, but we are considering this Clause against the background of the year 1957. Last year, as the hon. Member will be aware, we had a balance of £223 million.

Mr. Hale: May I finish one more sentence on the subject with which I was dealing? The question was asked, was I in favour of building towns by British capital abroad? I would say at once that in general I am not—in general. The buying of land abroad and the drawing of revenue from it to distribute here is one of the worst forms of subjecting a poor people to a burden which has to come out of their standard of life. The whole history of this subject, which includes some very fine work done by British companies—I do not criticise their work at all—brought us very near to international catastrophe under one or two heads. The steps which were taken by countries who were resurgent to nationalise the whole of their assets and to take over and expropriate British investments abroad at one time had a profound effect

upon our foreign relations. I do not want to develop this in detail; I am merely pointing out to the hon. Member for Essex, South-East (Mr. Braine) that one can have a different point of view. I think he will do me the justice of saying that I have been fairly active on the subject of the raising of the standards of living of the depressed peoples of the world everywhere and have always taken the view that that cannot be done only by investment.
Indeed, if one considers the great African continent, which can and I hope will make a great contribution to world peace and world understanding, the whole of the evidence is that a vital part of the development of that continent must be done by international capital which is not put there in the form of investment, largely because the creation of the necessary transport and the opening up of new areas must be done in this way. This applies not only to the backward countries. Anyone who looks at the continent of Australia will recognise that Australia ought to carry a huge investment burden, but with its small population it cannot economically bear that huge burden, which can never hope to produce an economic return and from which it would be unwise to seek to obtain an economic return. This can be done only through the instrument of a world development agency which would use the almost fortuitous export surpluses of the various countries, and use them for the best possible purpose instead of for this wretched business of distributing arms to people who do not want them on the ground that we are defending ourselves from somebody from whom it may be that we have nothing to fear.

The Deputy-Chairman: Order. The hon. Member is getting rather far from the Clause.

Mr. Hale: I want to get back at once, Sir Gordon, to the strait and narrow path. I was tempted for a moment by the inter-mention of the hon. Member for Essex, South-East, and my anxiety to give him a full and courteous answer for a moment took me away from the narrow line which I have set myself in discussing the Clause.
The hon. Member said that to some extent we were in agreement. Then he suddenly said—and this was a most impressive observation and one which I shall


always treasure—that we are now in the year 1957 and something has happened. All of us who have followed the economic fortunes of the present Government and their immediate predecessor since 1951 know that the economic chart of the nation as presented to Parliament has borne the closest resemblance to the chart of a streptococcic case—it goes up like that, and down like that, and up like that, and down like that, at various hours of the day. When he was Chancellor of the Exchequer, the present Home Secretary introduced a supplementary Budget, of course shortly after an Election when no question of votes was involved, in which he presented our case as one of desperate urgency and emergency. There are methods of testing the economy of a nation. One of the approved methods in what we used to call the good old days—which were not as good as all that but which had some feeling of security about them—was the value of Government securities. There was a day when people could put £100 in Consols and get £100 back.

The Deputy-Chairman: I think the hon. Member is getting a long way from the Clause.

Mr. Hale: I am coming to the point whether it is economically desirable to pass this Clause, and I respectfully suggest that it is fair for me to say, as I will say briefly, that at the moment Government securities are at their lowest figure in the history of Britain—lower than they were in the darkest days of the war.

Mr. Braise: Private savings are at their highest.

Mr. Hale: But is it a good thing to say to trustees all over the country, "You who trusted the Tory Government can lose your money but we who did not trust them and said we would operate outside the aegis of the Government can make a profit"?

Mr. Braine: But what will the hon. Gentleman's party do?

Mr. Hale: Let us show in due course. At the moment the millionaire who invested in Tory securities in 1951 and who dies tomorrow will not have enough money to pay his Estate Duty. It is at this time that we are talking about

disseminating our reserves. Those are the figures. I ask my right hon. Friends to remember this. Those of us who have been trustees, as I, unfortunately, have been—

Mr. Ede: My hon. Friend is not the only one.

Mr. Hale: I know, but it is, unfortunately, the lot of a solicitor to be trustee of a great many funds and to have said that a safe investment is British Government securities and to have had to face the bitter day of reckoning when coming to distribute the diminished assets. Therefore, we are entitled to ask whether we should pass this Clause, which gives specialised benefits to people operating abroad and does not give them to people operating in the ordinary way in this country.
Now I come to the point about whether overseas investment is of itself something which should have very special financial encouragement. There are degrees of investment, but at this moment the whole trend of overseas investment is being diverted primarily to mining, primarily to serving the war machine of two great industrial Juggernauts. We used to complain of miners being employed to dig up gold in Australia so that it could be buried at Fort Knox. Today miners are digging copper and utilising the resources of our Colonies to turn them into useless instruments to be chucked into the dustbins of London and New York. It was good Socialism in the old days to say that goods should be made for use and that where people were supplying a need, at least companies were operating a trade to the common advantage and to the supply of a need as an important matter.
Now I come to the question how far this can be avoided. In the absence of an authoritative pronouncement from the Chancellor of the Exchequer about what the Clause means—and I hope that someone is now inquiring what it means so that we may be told before the discussion terminates; one is in some difficulty discussing a hypothetical meaning—I understand that the meaning of this and the next Clause, which we cannot discuss in detail, but which is inherent in the understanding of the proposition, is that if a company carries on a trade in this country in the supply of goods and has an overseas subsidiary company which gets goods


from the principal company, then the concession is operated. That applies to a great many perfectly reputable firms which carry on an international trade and which form subsidiaries in Australia or colonial countries or foreign countries.
As I understand the Clause—and I hope that we shall have more elucidation from the Economic Secretary, who would be better able to elucidate if he would listen for a while to what the question is—at the moment, if those companies are engaged in wholesale and retail trade in this country, they do not get exemption for the subsidiary. In those circumstances, what they will do is to form another subsidiary and become a management company in this country for the colonial subsidiary or foreign subsidiary only and they will then qualify for exemption. They will hive off the whole of their home operations into another company which will become subsidiary to them. The result of the Clause as drafted is that there is no company carrying on substantial operations abroad which cannot, by a few strokes of the pen and by passing a few special resolutions, qualify for this exemption. A company which is exporting cotton goods, a company which is selling pottery all over the world and which has a big organisation here and smaller organisations in the Colonies, will quite easily, by reconstruction of the company, evade the provisions of the next Clause and will come within the concessions now being given.
We are entitled to know if the Chancellor has taken this possibility into account in the computation of the probable loss of revenue which would be involved, which he estimated at £35 million. Has he accounted for the expedients which will be used and the methods which can be devised to escape tax by all the companies now operating abroad, and, if so, how much will that come to? Is he proposing to take any steps to prevent it? Has this matter been considered? It is not only I who want to know. The whole point was argued out very thoroughly before the Royal Commission, which was well aware of the extreme difficulty of providing any effective system which was not capable of being avoided in this way.
9.30 p.m.
Speaking only for myself in this matter, I am completely unrepentant in saying that I do not particularly regard the present

method of overseas investment as one which I should passionately desire to support or encourage. In my view, considering the needs of territories for development, the vital difference which emerged in the consideration of the Colombo Plan was that the Colombo Plan did at least permit the participating countries to develop and plan their own economies and to say what were the things they needed for their own economies. The method of overseas investment is being directed more to a consideration by Great Britain of what is needed here and not there; and, in the United States, much more by a consideration of the needs of America's economic Armageddon, which, as hon. Members know, according to the Economic Report of President Truman, was represented as sufficient to absorb, within a generation, all the existing raw material available in the world. That is the problem we have to look at.
In conclusion, therefore, I ask the right hon. Gentleman to tell us to what extent the claims of home investment have been balanced with the claims of investment abroad. I represent a constituency which used to be, for its size, the biggest dollar revenue earning town in Great Britain, having an industry which used to have a tremendous impact upon our economy. There has been very little capital investment in the cotton industry at home, and the major capital investment which was organised under the Labour Government until 1951 was retarded, and deliberately retarded, by the operations of this Government from 1951 to 1953. The progressive expansion of our national income arising from home investment was diminished for a period, though, to be fair, we are now commencing to recover. In 1951 and 1952, there was a marked diminution.
It is a matter of very grave concern to those of us who regarded the cotton industry as one of our major industries that almost the whole of our production of textile machinery is designed primarily for export and goes primarily for export, and that investment in cotton manufacturing is taking place almost wholly abroad, not in Oldham and Lancashire.
These are serious matters about which we are entitled to have some advice from the Government Front Bench before this Clause goes any further. I have tried


to put them quite seriously, in the hope that the hon. Gentleman will now reply seriously to us and say what the answers are.

Mr. Birch: Many miscellaneous points have been raised and I will do my best to answer them. I share, with the Chancellor, some regret that right hon. and hon. Gentlemen opposite seem to be receding from the original support they gave to this proposal. But there it is; if they take that view, they obviously have the right to express it.
The right hon. Member for Smethwick (Mr. Gordon Walker) said that we could not afford more investment. Clearly, there is a limit to what we can invest. Generally, from both sides of the House, we get constant pressure for more investment, and I am glad to have it pointed out here that we cannot afford unlimited investment. But the Chancellor, when framing his Budget, naturally, made allowance for this.
The right hon. Gentleman, as I understood him, asked whether it would not have been better, if we wanted to give help to these companies abroad, to have given a direct subsidy. There would have been very great difficulties in that. As is shown by an Amendment which right hon. and hon. Gentlemen opposite have down for consideration later, they are motivated by the fear that we should be accused of giving export subsidies and, therefore, getting into difficulties. I would have thought that any direct subsidy, such as the right hon. Gentleman suggested, would have landed us in very grave international difficulties.

Mr. Gordon Walker: I did not say it. I said that the Board of Inland Revenue have said that it would be better to do it directly than by tax exemption.

Mr. Birch: I am coming to that in a minute.
Several hon. Members have asked about the cost and the various estimates that have been made in the past. The cost given in the Budget is the best estimate that we can make of the cost of this scheme. The other estimates were not estimates of the cost of this scheme, but of various shots at what the scheme might look like, and this estimate does include provision for hiving off. It is assumed

that quite a lot of hiving off will be done, and the estimate given includes provision for what we estimate will be lost in tax by hiving off.

Mr. Chapman: How much?

Mr. Birch: About £10 million.
The hon. Member for Northfield (Mr. Chapman) asked whether there would be much increased administrative cost. By definition, all these companies are already in the British tax net, and I do not think it is reasonable to suppose that the increased administration costs will be very high. In fact, they ought to be extremely small.

Mr. Houghton: All the children's allowances were also in the tax net, but when we asked for a tapering Clause we were told how complicated it would be to administer. Somebody had carefully worked out that, spread over 35,000 staff, it would mean another 200 to work it. That is what we were told when we moved an Amendment which would have increased the complexity of the child allowance. Of course, these companies are in the existing tax net, but if they create a lot of additional headaches, somebody will have to cope with them.

Mr. Birch: I hesitate to cross swords with such a distinguished tax gatherer as the hon. Member for Sowerby (Mr. Houghton), but I would have thought that a comparison between this Clause and a tapering children's allowance was not a very close one. All these accounts have to be gone through as it is in the ordinary way.
The right hon. Member for Smethwick sought to draw a comparison between what we are doing and various provisions in the Belgian and other tax codes, but what we are really doing here is trying to put overseas trade corporations on the same level so that they can compete successfully with resident companies. That really is the main object of the exercise. The right hon. Gentleman went on to say that it was very unfair, and asked if we ought not to remit Income Tax and Profits Tax of companies trading in this country, so that they can compete on the same terms as foreign companies trading in this country.
The point here is that foreign companies trading in this country are subject to British taxation, and, therefore, trade


on equal terms, whereas companies resident in this country trading in a foreign country are competing against companies resident there and are not in the same position.
A good many hon. and right hon. Gentlemen have asked about evasion, and have talked about the evidence of the Board of Inland Revenue to the Royal Commission. I think that it is very important to be clear about this in order to be fair. The evidence given by the Inland Revenue was not evidence about this scheme. It was evidence about possible schemes, and some of the more devastating remarks quoted today were about schemes which have not, in fact, been adopted.
Of course, it is true that the Board stated in its evidence that there is chance of evasion in the absence of complicated anti-evasion legislation, and complicated anti-evasion legislation is exactly what we have brought in here. My right hon. Friend, as he has said, is quite determined that these provisions shall not be abused, and that is why they have been brought in. We feel confident that we shall be able to hold the position.
There was also talk, such as we frequently have, about the expenses, and so on, of directors. It is worth remembering that all these companies are in the British tax net, and therefore, their accounts are susceptible to just the same examination as those of our own non-O.T.C. companies.
Several hon. Members have raised the question of the balance of payments. It is true that in the short run there will be some loss of foreign exchange, but we believe it is equally true that in the slightly longer run there will be a very considerable gain. That is the long-term object of doing this. We believe that it will build up our position abroad.
The hon. Member for Loughborough (Mr. Cronin) said that this arrangement might prejudice employment at home. Its object, of course, is exactly the opposite. One of the objects of enabling a British-controlled and resident company to compete on equal terms abroad is that a company which is resident here and controlled from here tends to order what it wants to buy in this country and not abroad. A country which is resident overseas is far more likely to buy anywhere it happens to fancy. We believe

that, in the long term, the effect will be more likely to safeguard employment in this country than to prejudice it.

Mr. Jay: Can the right hon. Gentleman now answer the question I asked earlier: would it not be possible for a United Kingdom company now manufacturing in this country, and exporting, to transfer its manufacture abroad, keeping only the management here and doing the manufacture abroad, getting the benefits of being an overseas trade corporation?

Mr. Birch: It is possible to set up a company abroad, but it would not be very sensible if a firm has a factory in this country already. [Interruption.] I am speaking of transferring. It is equally true that companies are free now to set up foreign resident companies, and they do. They are perfectly free to set up a new company anywhere in the sterling area, resident overseas.

Mr. Hale: What about the exchange regulations?

Mr. Birch: The exchange regulations are perfectly clear.
I think I have answered all the questions except that raised by the hon. Member for Oldham, West (Mr. Hale) about the company, with which I am not familiar.

Mr. Hale: The right hon. and learned Member for Kensington, South (Sir P. Spens) asked the same question.

Mr. Birch: All I would say is that, as the hon. Member knows, there is a perfectly good body of case law in taxation about what constitutes trading. I do not know the particulars of the company and it would be quite wrong for me to pronounce on any particular company. It is clear in law what constitutes a trade and it will be for the Commissioners to administer that law.

Mr. Hale: The right hon. Gentleman cannot get away with that. I am not asking him to pronounce on a particular company. I merely quoted an example. What I and the right hon. and learned Member for Kensington, South wanted to know is whether a company abroad whose primary and. indeed, sole operations are the buying, selling and investment of property, which does not carry on trade in the way in which we use the


word "trade" in its common or garden sense in ordinary conversation, will be entitled to this exemption.

Mr. Birch: If it trades according to the tax law, it is exempt.

Mr. Cronin: The right hon. Gentleman suggested that the long-term effect would be an improvement in our balance of payments position and that there will be a return flow towards the United Kingdom. How will that take place when one of the specific provisions of Part IV is to penalise remittances back to this country?

Mr. Birch: That is just the same as in any other case.

Mr. Roy Jenkins: The Economic Secretary seemed to be a good deal concerned, as have been one or two other Government spokesmen, with the fact that we on this side were receding from a position that we had previously taken up and were becoming more hostile to Part IV of the Bill.
There are at least two very good reasons for this. The first is that we have only recently seen the series of extremely important and powerful Inland Revenue memoranda on this subject. Indeed, it is the Government's fault that we have only seen them so recently. Despite the fact that they provide most relevant evidence for considering this problem they were made available to hon. Members only at a late stage, when we had started the Committee stage of the Bill and in response to pressure from my right hon. Friend the Member for Huyton (Mr. H. Wilson).
9.45 p.m.
Undoubtedly, these memoranda have had a very great effect upon us. The Economic Secretary was inclined to say that the memoranda were unimportant, because they did not strictly deal with the particular scheme that the Government have put forward at present. The memoranda could not have done that, because when they were written the exact nature of the present scheme was not known.
Can the Economic Secretary assure the Committee that the objections of the Inland Revenue to these other schemes all disappeared when the nature of the Government scheme was known and that

the present scheme was prepared entirely with the support of and on the advice of the Inland Revenue? [HON. MEMBERS: "Answer."] In view of the right hon. Gentleman's silence, or at least his reluctance to get to his feet, I think that we can take it that had the Inland Revenue been called upon to comment on it the present scheme would have met with strictures.

Mr. Birch: The hon. Member must be aware that it is entirely improper to discuss or disclose in public the advice Ministers receive from their officials, whether for or against a course of action.

Mr. Jenkins: We are confronted with a position in which we have obtained with difficulty from the Government a series of quite closely argued memoranda dealing with schemes not exactly the same as the Government's but very close to it, and dealing with them in a most devastating way. We quote these memoranda, as we are entitled to do and must do, and then the Economic Secretary says that it is unfair for us to quote them because they deal with slightly different schemes.
I therefore ask the right hon. Gentleman whether he thinks that this present scheme would meet all the objections of the Inland Revenue to different, slightly alternative schemes and he says that that is a most improper question. In these circumstances, we are bound to draw our own deductions and to assume that, in fact, this scheme would meet and possibly did meet with as strong opposition from the Inland Revenue as did the previous, hypothetical schemes.
There is no doubt that a great part of the Inland Revenue objections in these memoranda applies just as much to the present scheme as it did to the other schemes. For instance, the Inland Revenue argues extremely powerfully against the possibility of determining accurately and easily what is an arm's length sale between a manufacturing company and an exporting company which it has set up and hived off to sell its products abroad.

Mr. Hale: Surely the Economic Secretary went further. He said that a great deal of attention had been paid by a number of hon. Members to the Inland Revenue memoranda and then he said


that the main and most potent arguments of the Inland Revenue were directed against other propositions. Those words of the right hon. Gentleman could have no other meaning than to convey to us that the Inland Revenue view might have been different had it been applied to this proposition.
Therefore, the right hon. Gentleman was conveying information to the Committee on what advice he had received from the Inland Revenue, and to convey erroneous information is surely very much worse than to give correct information.

Mr. Jenkins: I agree entirely with my hon. Friend the Member for Oldham, West (Mr. Hale) on this as on so many other questions. The Economic Secretary having got us into this difficulty, it would be extremely helpful if he could tell us quite clearly whether the present scheme has the support of the Inland Revenue.

Mr. Braine: As the hon. Gentleman appears to be the voice of the Civil Service, may I ask whether he has taken into account the views expressed to him privately or the published views of organised bodies in this country which have the responsibility of carrying on trade, of providing employment, of ensuring our balance of payments and of ensuring that the Government can govern and the Welfare State can go on for ever?

Mr. Jenkins: I am not suggesting for a moment that we should be governed in everything we do by what the Inland Revenue says. That would certainly not be the view of those of us on this side of the Committee. However, I would be extremely surprised to hear that it was the view of the Treasury Bench, or, indeed, of hon. Gentlemen opposite generally, that in considering an important departure from our tax practice the fullest weight should not be given to the Inland Revenue point of view.
The point I was dealing with was the one made by the Economic Secretary, that he has detected a slight change, a growing hostility, in the attitude of the Opposition to Part IV of the Bill. There is a good reason for that. It is that we have had made available to us some of the most devastating documents from the

Inland Revenue which I have ever seen. I do not say that is the sole argument we have to consider, but I say that we would be extremely foolish if we were not to take into full account what the Inland Revenue says. I am sure that, on reflection, hon. Gentlemen opposite would not wish to encourage us on this side of the Committee to get into a frame of mind in which we, in our turn, were to rush into tax experiments without the expert advice of the Inland Revenue and of those who would wish to advise us on these questions.
There is one other point which partly accounts for our growing hostility, perhaps throughout the day. That is the extraordinarily perfunctory nature of the justification for the attitude of the Government which we have had, particularly from the Chancellor of the Exchequer but from the Government Front Bench as a whole. There was a most remarkable contrast, which I pointed out at the time, between the closely argued and convincing way in which the Chancellor dealt with an Amendment from his own side of the Committee designed to widen the concession, and the way in which he and other Treasury spokesmen dealt with Amendments from this side of the Committee designed to narrow the concession.
It is rather curious that when the Chancellor is bringing forward a major proposal, for which he says there is a great weight of argument which the hon. Gentleman the Member for Billericay—

Mr. Braine: Essex, South-East.

Mr. Jenkins: Billericay is much nicer and suits the hon. Gentleman much better.
I was saying that when the Chancellor of the Exchequer is bringing forward a major proposal for which he says there is a great weight of argument and demand from the trading community, it is rather curious that he should be so much more convincing when he is saying how impossible it is to extend the concession than when he is justifying the concession.
My hon. Friend the Member for Northfield (Mr. Chapman) said that in dealing with our earlier Amendment the Chancellor merely waved the Union Jack and indulged in a little rhetoric, and left it at that. That is true. When we are dealing with a matter of this importance, a little rather breathless flag-waving is


not enough to convince us of the importance and validity of the case with which we are dealing. Therefore, there are these two good reasons why our attitude has stiffened somewhat as we have considered further these proposals.
Of course, I agreed that we cannot consider this purely in terms of administrative tax practice. We must also consider the economic arguments, which certainly exist, in favour of such a change, and try to see whether, on balance, they are powerful arguments to which we as a Committee ought to give weight.
I do not think that these arguments have been put forward as closely and carefully as they should have been from the other side of the Committee. What is the position? There is no doubt that we start off with a loss to the Revenue which the Chancellor says is £35 million. We accept that, though certainly on a scheme not very different from the present one the Inland Revenue memorandum talked about much higher sums. I hope that we can have the assurance of the Economic Secretary that the £35 million is, as it were, calculated upon the same basis, allowing for the slight difference in scheme, as the very much higher sums put forward by the Inland Revenue three or four years ago. Could we have his assurance on that point?

Mr. Birch: I do not know on what basis the previous ones were calculated, but this was calculated on the best estimate that could be made of what could happen under this scheme.

Mr. Jenkins: We have this estimate of £35 million—not a negligible sum and one which we hope very much will not be exceeded. We have, as well, which is not in dispute, a short-term debit item so far as our balance of payments is concerned. The debit item is on two counts immediately, because the provisions of Part IV of the Bill mean, first, that money will not be remitted to the United Kingdom which otherwise would so be remitted, and it also means, quite inevitably, that investment will be diverted overseas, because conditions there will be more favourable, which would not otherwise be so diverted.
In the short run, we have these two inevitable factors working against the

balance of payments. Our balance of payments position is not very healthy at present. I asked this afternoon whether the Chancellor could assure the Committee and assure the country and some people outside the country that he really felt confident, in introducing these sweeping concessions, about the balance of payments position and the gold position over the next six months. He did not do so. I am bound to say, in view of the figures available to us, I am not surprised that he did not do so.
At any rate, we have this short-term debit item on our balance of payments. What we have to consider is the extent to which we can believe there will be long-term items which will more than counter-balance this short term item, even assuming that we are in a position at present to take a short-term risk—more than a risk, a certainty—of a short-term loss for the possibility of long-term benefits.
What are these benefits to be? To the extent that these concessions assist in the build-up of companies which produce goods, mainly primary products which we import into this country, this will be of some advantage to us. It may improve our terms of trade. But to the extent that these concessions assist in the build-up of companies which will produce manufactured goods, whether in our Commonwealth or elsewhere, this will, on the whole, increase our difficulties in exporting from this country and will tend to worsen the terms of trade in the future.
It is worth noting in this respect, in considering what is likely to be the long-term effect on our balance of payments, that American concessions, on the whole concessions very much more limited than those which we are granting, to overseas trade companies are often argued in favour of by the companies which want the concessions and by other people discussing them in America on the grounds that they will lessen the long-term world dollar shortage; in other words, that in the long term they will worsen the balance of payments of the United States.
But, of course, the worsening of the balance of payments of the United States is something which would not greatly harm the United States and would greatly benefit the rest of the world; but worsening the balance of payments


position of the United Kingdom is something which would be disastrous to us and do very little good to the rest of the world. There is a very sharp difference there, and it is, therefore, curious that it should be argued on this ground.
I understand that it is the point of view of the Government and of hon. Members opposite that the long-term benefit will be that in the future we shall get coming back to this country a great flow of investment income, of profits, from these overseas trade companies which will greatly help our position on invisible accounts in the future.
10.0 p.m.
I find it very difficult to believe that even from the longer-term point of view a concession which necessarily puts a company 'which does not remit to this country at a great advantage compared with one which remits to this country will have this effect on our balance of payments. It is a very odd form of concession if the desire and belief is that one of its main results will be to increase the flow of profits coming into this country from our companies abroad.
I also understand that part of the argument—this was put forward by the hon. Member for Stafford and Stone (Mr. H. Fraser) in a brief intervention—is that it will greatly increase the flow of foreign, presumably mainly dollar, capital into companies resident in this country which will use that capital overseas in the sterling area or elsewhere. I am not at this point altogether clear what it is that the Government and hon. Members opposite wish to achieve in this respect. So often we are told that what is desired is to avoid companies which operate in the Commonwealth passing to foreign ownership and control. A very curious way of going about this is to ensure that their shareholders are, as far as possible, resident in the United States of America.

Mr. H. Fraser: Perhaps 49 per cent. of them.

Mr. Jenkins: There is no provision in the Bill to say that the concession will apply up to and not beyond 49 per cent. It may be argued that it does not matter that one has a large number of shareholders resident abroad if the seat of control of the company is firmly and permanently established in London. Yet

earlier, the right hon. and learned Member for Kensington, South (Sir P. Spens) told us that it was a matter of indifference to him where the seat of control of these companies was located and that he believed that in many cases it was better that it should be moved abroad. He moved an Amendment, which provoked far more eloquence from hon. Members opposite than they have shown in the rest of our debate today, to extend the benefits of this part of the Bill to companies whose seat of control did not remain in this country. If our object is some rather loosely defined patriotic purpose, how shall we achieve this by encouraging companies with as large an American shareholding as it is possible for them to have to move their seats of control away from the United Kingdom? Yet this is the proposition that we are asked to take as being put forward by hon. Members opposite.
We have heard a great deal about putting United Kingdom O.T.C.s on a basis of complete equality in tax matters with any companies which they may find themselves operating alongside abroad. This seems a very sweeping aim for the Government to set themselves. I certainly appreciate that one should want to try to view the position in which a United Kingdom company operating in, say, West Africa might be on much less favourable terms than a German, American or Swiss company operating in the same territory, but if we are not merely to deal with companies belonging to these different nationalities which operate abroad but are to say that our O.T.C.s must be placed at least on terms of equality with any company whether operating abroad or in its own territory anywhere in the world, we are setting ourselves a very difficult tax target.
As has been pointed out by my right hon. Friend the Member for Smethwick (Mr. Gordon Walker) and other hon. Members, we are going in Part IV, much further than any country except France and Switzerland, with the Belgians going slightly less far We are going much further than the Americans—

Mr. Braine: Because we are more dependent on overseas trade.

Mr. Jenkins: I wish that the hon. Member would define rather more closely what he means by "overseas trade." Of


course we are more dependent on overseas trade, but overseas trade is not necessarily a function of a number of the companies which have registered in London but which operate abroad.
Here I think that we should really seriously consider the example of Western Germany. Western Germany is a country which, at present, is generally thought to be pretty experienced and pretty successful in international trade, although I freely admit that it is not quite so dependent on international trade as are we. Western Germany, of all highly-developed industrial countries, is the one that has done least of all to help its overseas trade corporations. It has done nothing at all—[HON. MEMBERS: "Oh."] Well, what has it done?

Mr. A. E. Cooper: The hon. Gentleman must surely realise that one of the greatest handicaps that British industrialists have had since the end of the war is the extended credit terms which German industrialists have had.

Mr. Jenkins: But we are not discussing extended credit terms. In any case, those terms are applied to helping manufacturing companies in Germany and are not applied to helping mining, manufacturing, trading—or whatever they may be—companies which happen to be registered in Frankfurt but which operate elsewhere in the world.
We are discussing an entirely different subject, and the plain fact here is that so far as tax concessions to overseas trade corporations are concerned, the Government of the Federal Republic of Western Germany—which have a high rate of tax—60 per cent.—upon company profits, although a lower rate of tax than have we upon individual incomes—give no concession of any sort to overseas trade corporations.
I wonder if it is entirely an accident? Let hon. Members opposite ponder it from the other point of view; that Western Germany, which does nothing at all in the direction of what they say is essential from the point of view of the future of our trade, is the country whose trade has expanded most rapidly in the past six years, and is also the country which in the whole of the Western world has much the most satisfactory rate of internal investment at the present time.
There is, inevitably, a choice between internal and overseas investment. It is just nonsense for hon. Members opposite to talk as though there were no choice here at all, and as though it was an absolute good for us to pour out any money we can into overseas investment, whether or not we had a real surplus to back it and whether or not it was the best use for the resources available. Of course there is a choice, and of course it is essential that we preserve a balance between home and foreign investment. At present, I think we are all rather worried about the level of our industrial domestic investment, and I am extremely doubtful whether it is wise to give this very substantial tax concession to overseas, as opposed to home investment.
Hon. Members opposite talk a great deal about the importance to our export trade of maintaining those connections with this country which will enable people to buy British exports who would not otherwise do so. They are also always very inclined to talk about how hard headed they are compared with our rather soft, or theoretical approach on this side, but I should have thought that a fillip far more important to our export trade in future than any loose connection preserved between these overseas countries and the City of London, would be the efficiency of our own exporting industries and their ability to offer high-quality goods on competitive terms. That is very directly related to our own internal rate of investment here, which must necessarily and inevitably be in direct competition with our rate of investment abroad.
Therefore, we should be extremely doubtful about passing the Clause. I do not think that on this side of the Committee we take the view that there is not a problem, but the problem is a good deal more complex and difficult than the Chancellor implied in his speeches. We should like to do something to help certain companies abroad who have a legitimate case.
In the circumstances, in which the Chancellor's plan is against the strongly expressed and closely argued advice of the Inland Revenue, in which he has gone far beyond the Report of the majority of the Royal Commission—a Report on which it was difficult to gather even a bare majority—in which he is losing a


large amount of revenue and is certainly damaging our short-term balance of payments position at a time when that position is bad enough to cause us all grave worry, I do not think we can support these proposals. Therefore, we will vote against the Clause.

Mr. Houghton: rose—

Hon. Members: Divide.

Mr. Houghton: I rise for a moment to uphold the supremacy of parliamentary government and to put the Board of Inland Revenue in its place. We shall make a mistake if we elevate unduly either the wisdom or the authority of a body of civil servants. [HON. MEMBERS: "Oh."] I have had a longer contact than probably anyone else in this Committee with the Board of Inland Revenue and I know it can talk a great deal of rubbish at times. The Board of Inland Revenue gave evidence to the Royal Commission. It is perhaps a pity that its memoranda were not published at the time the Royal Commission's Report was published.

Mr. Powell: The hon. Member knows that it was the Royal Commission itself which recommended that these reports should not be published.

Mr. Houghton: I fully acknowledge that, but I am still entitled to say that it was a pity. Those who read the Report should be able to read the evidence on which the Royal Commission arrived at its conclusions. To have the whole thing comprehensively before one is of great advantage. The placing in the Library at a comparatively late hour of these memoranda from the Board of Inland Revenue to the Royal Commission has influenced quite considerably the attitude of those of us on this side of the Committee towards the proposals in Part IV of the Bill.
We would all agree that the Board of Inland Revenue has had long and close experience of the administration of a complicated fiscal tariff and that its point of view must carry respect, but the Board must not dominate the Chancellor of the Exchequer or govern the actions of the House of Commons. The Board, by Letters Patent, is given the care and management of the Income Tax Act, but it is not given the power to decide fiscal policy.
It would be a great mistake if we let the Board of Inland Revenue get a swelled head as the result of the debate today. It is not entitled to do so. It would be against the public interest and, as it happens, very inconvenient to me. Therefore, we must put the evidence of the Board in its proper perspective. The Board of Inland Revenue wrote copious memoranda against any concession being given to fuel-saving devices which this House eventually approved. There is not the slightest doubt that the Board of Inland Revenue advised my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) against a proposal which he made to this House that—

The Temporary Chairman (Sir Norman Hulbert): I must ask the hon. Gentleman to relate his remarks to the Clause.

Mr. Houghton: Amidst such praise and respect for the Board of Inland Revenue am I not in order, Sir Norman, in condemning it or at least in putting its evidence in the proper perspective?
There is not the slightest doubt that the Board of Inland Revenue has advised at times against things upon which the House of Commons has decided, and it is important that we should look at the evidence given by the Board of Inland Revenue in proper relation to our own judgment on the merits of those matters.
I am not quarrelling with my hon. Friends. I think that the disclosure of the memoranda at a late hour has given their point of view undue prominence. I judge the matter by the recommendations of the Royal Commission, which were extremely lukewarm in this connection, and on our judgment of the merits of the matter in regard to what the Royal Commission said and what our present appraisal of the situation is having regard to the admitted administrative difficulties as well as other objections which the Board of Inland Revenue raised. It is of importance not to elevate the permanent Civil Service in this Committee beyond a reasonable point of reasonable advice to the Minister and the Legislature. That is a very important principle in our constitutional practice which we must observe.
10.15 p.m.
I do not want to detain the Committee any longer, but I wish to conclude by saying that on the merits of the matter


counsel and opinions are divided on the proposals in Part IV of the Bill. If one looks at part of the Royal Commission's Report headed, "The Action Recommended", in page 206, and looks at the antecedent paragraphs which raise doubts as to whether concessions should be given at all, the question we have to consider is whether the case has been made to give this concession in this way and on this scale at present. That is the issue.
My hon. Friend the Member for Stechford concluded his speech by analysing the problem from that point of view and that, I think, is the proper way in which we should reach our decision. We have already discussed during the day the possible loopholes and the scope of a concession which my hon. Friend the Member for Oldham, West (Mr. Hale) pointed out

may go far beyond any serious intentions either of the Chancellor or the Committee.

We have to weigh these considerations against the large surrender of revenue which is involved in these proposals. On the whole, I think that the conclusion on these benches is that the concessions are too extensive, too widespread and too costly. In those circumstances, my right hon. and hon. Friends have decided to vote against the Question, "That the Clause stand part of the Bill." From my point of view, I reached that conclusion on the merits of the matter as I saw it and not solely or even mainly on the recommendations made to the Royal Commission.

Question put, That the Clause stand part of the Bill:—

The Committee divided: Ayes 252, Noes 215.

Division No. 144.]
AYES
[10.20 p.m.


Aitken, W. T.
Cunningham, Knox
Heald, Rt. Hon. Sir Lionel


Allan, R. A. (Paddington, S.)
Currie, C. B. H.
Heath, Rt. Hon. E. R. G.


Alport, C. J. M.
Dance, J. C. C.
Henderson, John (Cathcart)


Arbuthnot, John
Davidson, Viscountess
Henderson-Stewart, Sir James


Armstrong, C. W.
D'Avigdor-Goldsmid, Sir Henry
Hesketh, R. F.


Ashton, H.
Deedes, W. F.
Hicks-Beach, Maj. W. W.


Atkins, H. E.
Digby, Simon Wingfield
Hill, Mrs. E. (Wythenshawe)


Baldock, Lt.-Comdr. J. M.
Donaldson, Cmdr. C. E. MCA.
Hill, John (S. Norfolk)


Baldwin, A. E.
Drayson, G. B.
Hinchingbrooke, Viscount


Balniel, Lord
du Cann, E. D. L.
Hirst, Geoffrey


Barber, Anthony
Dugdale, Rt. Hn. Sir T. (Richmond)
Hobson, John (Warwick &amp; Leam'g'tn)


Barlow, Sir John
Duthie, W. S.
Holland-Martin, C. J.


Barter, John
Eden, J. B. (Bournemouth, West)
Holt, A. F.


Baxter, Sir Beverley
Elliott, R.W.(N'castle upon Tyne, N.)
Hornby, R. P.


Beamish, Maj. Tufton
Emmet, Hon. Mrs. Evelyn
Hornsby-Smith, Miss M. P.


Bell, Philip (Bolton, E.)
Errington, Sir Eric
Horobin, Sir Ian


Bell, Ronald (Bucks, S.)
Farey-Jones, F. W.
Howard, Hon. Greville (St. Ives)


Bennett, F. M. (Torquay)
Fell, A.
Howard, John (Test)


Bevins, J. R. (Toxteth)
Finlay, Graeme
Hudson, W. R. A. (Hull, N.)


Bidgood, J. C.
Fisher, Nigel
Hughes-Young M. H. C.


Biggs-Davison, J. A.
Fletcher-Cooke, C.
Hurd, A. R.


Birch, Rt. Hon. Nigel
Fraser, Hon, Hugh (Stone)
Hutchison, Sir Ian Clark (E'b'gh, W.)


Bishop, F. P.
Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Hutchison, Michael Clark (E'b'gh, S.)


Black, C. W.
Freeth, Denzil
Hylton-Foster, Rt. Hon. Sir Harry


Body, R. F.
Gammans, Lady
Iremonger, T. L.


Boothby, Sir Robert
Garner-Evans, E. H.
Irvine, Bryant Godman (Rye)


Bowen, E. R. (Cardigan)
George, J. C. (Pollok)
Jenkins, Robert (Dulwich)


Boyd-Carpenter, Rt. Hon. J. A.
Gibson-Watt, D.
Jennings, Sir Roland (Hallam)


Boyle, Sir Edward
Glover, D.
Johnson, Dr. Donald (Carlisle)


Braine, B. R.
Godber, J. B.
Johnson, Eric (Blackley)


Brooman-White, R. C.
Gomme-Duncan, Col. Sir Alan
Jones. Rt. Hon. Aubrey(Hall Green)


Bryan, P.
Goodhart, Philip
Joseph, Sir Keith


Bullus, Wing Commander E. E.
Gough, C. F. H.
Kaberry, D.


Burden, F. F. A.
Gower, H. R.
Keegan, D.


Butcher, Sir Herbert
Graham, Sir Fergus
Kerby Capt. H. B.


Campbell. Sir David
Grant, W. (Woodside)
Kerr, H. W.


Channon, Sir Henry
Grant-Ferris, Wg.Cdr. R.(Nantwich)
Kershaw, J. A.


Chichester-Clark, R.
Green, A.
Kimball, M.


Clarke, Brig. Terence (Portsmth.W.)
Gresham Cooke, R.
Lambert, Hon. G.


Cole, Norman
Grimston, Hon. John (St. Albans)
Lancaster, Col. C. G.


Conant, Maj. Sir Roger
Grosvenor, Lt.-Col. R. G.
Langford-Holt, J. A.


Cooke, Robert
Gurden, Harold
Leather, E. H. C.


Cooper, A. E.
Hall, John (Wycombe)
Leavey, J. A.


Cooper-Key, E. M.
Hare, Rt. Hon. J. H.
Leburn, W. G.


Cordeaux, Lt.-Col. J. K.
Harris, Frederic (Croydon, N.W.)
Legge-Bourke, Maj. E. A. H.


Corfield, Capt. F. V.
Harrison, A. B. C. (Maldon)
Legh, Hon. Peter (Petersfield)


Craddock, Beresford (Spelthorne)
Harrison, Col. J. H. (Eye)
Lindsay, Hon. James (Devon, N.)


Crosthwaite-Eyre, Col. O. E.
Harvey, Sir Arthur (Macclesfield)
Lindsay, Martin (Solihull)


Crowder, Sir John (Finchley)
Harvey, Ian (Harrow, E.)
Linstead, Sir H. N.


Crowder, Petre(Ruislip—Northwood)
Harvey, John (Walthamstow, E.)
Lloyd, Maj. Sir Guy (Renfrew, E.)




Low, Rt. Hon. A. R. W.
Pickthorn, K. W. M.
Stoddart-Scott, Col. M.


Lucas, Sir Jocelyn (Portsmouth, S.)
Pike, Miss Mervyn
Storey, S.


Lucas, P. B, (Brentford &amp; Chiswick)
Pilkington, Capt. R. A.
Studholme, Sir Henry


Lucas-Tooth, Sir Hugh
Pitman, I. J.
Summers Sir Spencer


Macdonald, Sir Peter
Pitt, Miss E. M.
Sumner, W. D. M. (Orpington)


Mackeson, Brig. Sir Harry
Pott, H. P.
Taylor, Sir Charles (Eastbourne)


Mackie, J. H. (Galloway)
Powell, J. Enoch
Taylor, William (Bradford, N.)


McLean, Neil (Inverness)
Prior-Palmer, Brig. O. L.
Teeling, W.


MacLeod, John (Ross &amp; Cromarty)
Profumo, J. D.
Temple, John M.


Macmillan, Maurice (Halifax)
Ralkes, Sir Victor
Thomas, Leslie (Canterbury)


Maitland, Hon. Patrick (Lanark)
Ramsden, J. E.
Thompson, Kenneth (Walton)


Manningham-Buller, Rt. Hn. Sir R.
Rawlinson, Peter
Thompson, Lt. Cdr. R.(Croydon, S.)


Markham, Major Sir Frank
Redmayne, M.
Thorneycroft, Rt. Hon. P.


Marples, Rt. Hon. A. E.
Rees-Davies, W. R.
Thornton-Kemsley, C. N.


Marshall, Douglas
Remnant, Hon. P.
Tilney, John (Wavertree)


Mathew, Roy
Rippon, A. G. F,
Turton, Rt. Hon. R. H.


Mawby, R. L.
Robinson, Sir Roland (Blackpool, S.)
Tweedsmuir, Lady


Maydon, Lt.-Cmdr, S. L. C.
Robson-Brown, W.
Vane, W. M. F.


Medlicott, Sir Frank
Rodgers, John (Sevenoaks)
Vaughan-Morgan, J. K.


Milligan, Rt. Hon. W. R.
Roper, Sir Harold
Vickers, Miss Joan


Molson, Rt. Hon. Hugh
Ropner, Col. Sir Leonard
Wade, D. W.


Morrison, John (Salisbury)
Russell, R. S.
Walker-Smith, Rt. Hon. Derek


Mott-Radclyffe, Sir Charles
Schofield, Lt.-Col. W.
Wall, Major Patrick


Nabarro, G. D. N.
Scott-Miller, Cmdr. R.
Ward, Rt. Hon. G. R. (Worcester)


Neave, Airey
Sharples, R. C.
Ward, Dame Irene (Tynemouth)


Nicholls, Harmar
Shepherd, William
Webbe, Sir H.


Nicholson, Godfrey (Farnham)
Simon, J. E. S. (Middlesbrough, W.)
Whitelaw, W. S. I.


Nicolson, N.(B'n'm'th, E. &amp; Chr'ch)
Smithers, Peter (Winchester)
Williams, Paul (Sunderland, S.)


Nugent, G. R. H.
Spearman, Sir Alexander
Williams, R. Dudley (Exeter)


Oakshott, H. D.
Spence, H. R. (Aberdeen, W.)
Wood, Hon. R.


O'Neill, Hn. Phelim (Co. Antrim, N.)
Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)
Woollam, John Victor


Osborne, C.
Stanley, Capt. Hon. Richard
Yates, William (The Wrekin)


Page, R. G.
Stevens, Geoffrey



Pannell, N. A. (Kirkdale)
Steward, Harold (Stockport, S.)
TELLERS FOR THE AYES:


Partridge, E.
Steward, Sir William (Woolwich, W.)
Mr. Wills and




Mr. Edward Wakefield.




NOES


Ainsley, J. W.
Dodds, N. N.
Jeger, George (Goole)


Allaun, Frank (Salford, E.)
Dye, S.
Jeger, Mrs. Lena (Holbn &amp; St. Pnes. S.)


Allen, Arthur (Bosworth)
Ede, Rt. Hon. J. C.
Jenkins, Roy (Stechford)


Allen, Scholefield (Crewe)
Edelman, M.
Johnson, James (Rugby)


Awbery, S. S.
Edwards, Rt. Hon. Ness (Caerphilly)
Jones, Rt. Hon. A. Creech (Wakefield)


Bacon, Miss Alice
Edwards, W.J. (Stepney)
Jones, David (The Hartlepools)


Baird, J.
Evans, Albert (Islington, S.W.)
Jones, Elwyn (W. Ham, S.)


Balfour, A.
Fernyhough, E.
Jones, J. Idwal (Wrexham)


Bence, C, R. (Dunbartonshire, E.)
Fienburgh, W.
Jones, T. W. (Merioneth)


Benson, G.
Finch, H. J.
Kenyon, C.


Beswick, Frank
Fletcher, Eric
Key, Rt. Hon. C. W.


Blackburn, F.
Forman, J. C.
King, Dr. H. M.


Blenkinsop, A.
Fraser, Thomas (Hamilton)
Ledger, R. J.


Blyton, W. R.
Gibson, C. W.
Lee, Frederick (Newton)


Boardman, H.
Gooch, E. G.
Lee, Miss Jennie (Cannock)


Bottomley, Rt. Hon. A. C.
Gordon Walker, Rt. Hon. P. C.
Lewis, Arthur


Bowden, H. W. (Leicester, S.W.)
Grenfell, Rt. Hon. D. R.
Lindgren, G. S.


Bowles, F. G.
Grey, C. F,
Logan, D. G.


Boyd, T. C.
Griffiths, David (Rother Valley)
Mabon, Dr. J. Dickson


Braddock, Mrs. Elizabeth
Griffiths, William (Exchange)
McInnes, J.


Brockway, A. F.
Hale, Leslie
McKay, John (Wallsend)


Broughton, Dr. A. D. D.
Hall, Rt. Hn. Glenvil (Colne Valley)
MacMillan, M. K. (Western Isles)


Brown, Rt. Hon. George (Belper)
Hamilton, W. W.
MacPherson, Malcolm (Stirling)


Burke, W. A.
Hannan, W.
Mahon, Simon


Burton, Miss F. E.
Harrison, J. (Nottingham, N.)
Mann, Mrs. Jean


Butler, Herbert (Hackney, C.)
Hastings, S.
Marquand, Rt. Hon. H. A.


Butler, Mrs. Joyce (Wood Green)
Hayman, F. H.
Mason, Roy


Carmichael, J.
Henderson, Rt. Hn. A. (Rwly Regis)
Mayhew, C. P.


Champion, A. J.
Herbison, Miss M.
Mikardo, Ian


Chapman, W. D.
Hewitson, Capt. M.
Mitchison, G. R.


Chetwynd, G. R.
Hobson, C. R. (Keighley)
Monslow, W.


Coldrick, W.
Holmes, Horace
Moody, A. S.


Collick, P. H. (Birkenhead)
Houghton, Douglas
Morrison, Rt. Hn. Herbert (Lewis'm, S.)


Collins, V. J.(Shoreditch &amp; Finsbury)
Hoy, J. H.
Mort, D. L.


Corbet, Mrs. Freda
Hubbard, T. F.
Moss, R.


Cove, W. G.
Hughes, Emrys (S. Ayrshire)
Moyle, A.


Craddock, George (Bradford, S.)
Hughes, Hector (Aberdeen, N.)
Mulley, F. W.


Cronin, J. D.
Hunter, A. E.
O'Brien, Sir Thomas


Crossman, R. H. S.
Hynd, H. (Accrington)
Oliver, G. H.


Cullen, Mrs. A.
Hynd, J. B. (Attercliffe)
Oram, A. E.


Dalton, Rt. Hon. H.
Irvine, A. J. (Edge Hill)
Orbach, M.


Davies, Harold (Leek)
Irving, Sydney (Dartford)
Oswald, T.


Deer, G.
Isaacs, Rt. Hon. G. A.
Owen, W. J.


de Freitas, Geoffrey
Janner, B.
Paling, Rt. Hon. W. (Dearne Valley)


Delargy, H. J.
Jay, Rt. Hon. D. P. T.
Palmer, A. M. F.







Pannell, Charles (Leeds, W.)
Skeffington, A. M.
Viant, S. P.


Pargiter, G. A.
Slater, Mrs. H. (Stoke, N.)
Watkins, T. E.


Parker, J.
Slater, J. (Sedgefield)
Wells, William (Walsall, N.)


Paton, John
Smith, Ellis (Stoke, S.)
West, D. G.


Pentland, N.
Snow, J. W.
Wheeldon, W. E.


Plummer, Sir Leslie
Soskice, Rt. Hon. Sir Frank
White, Mrs. Eirene (E. Flint)


Popplewell, E.
Sparks, J. A.
White, Henry (Derbyshire, N.E.)


Price, J. T. (Westhoughton)
Steele, T.
Wilcock, Group Capt. C. A. B


Price, Philips (Gloucestershire, w.)
Stewart, Michael (Fulham)
Wilkins, W. A.


Probert, A. R.
Stokes, Rt. Hon. R. R. (Ipswich)
Willey, Frederick


Proctor, W. T.
Stonehouse, John
Williams, David (Neath)


Pryde, D.J.
Stones, W. (Consett)
Williams, Rev. Llywelyn (Ab'tillery)


Randall, H. E.
Strachey, Rt. Hon. J.
Williams, Rt. Hon. T. (Don Valley)


Redhead, E. C.
Strauss, Rt. Hon. George (Vauxhall)
Williams, W. R. (Openshaw)


Reid, William
Summerskill, Rt. Hon. E.
Willis, Eustace (Edinburgh, E.)


Rhodes, H.
Swingler, S. T.
Wilson, Rt. Hon. Harold (Huyton)


Roberts, Albert (Normanton)
Sylvester, G. O.
Winterbottom, Richard


Roberts, Goronwy (Caernarvon)
Taylor, Bernard (Mansfield)
Woodburn, Rt. Hon. A.


Robinson, Kenneth (St. Pancras, N.)
Taylor, John (West Lothian)
Woof, R. E.


Rogers, George (Kensington, N.)
Thomas, Iorwerth (Rhondda, W.)
Yates, V. (Ladywood)


Royle, C.
Thornton, E.
Zilliacus, K.


Short, E. W.
Timmons, J.



Silverman, Julius (Aston)
Ungoed-Thomas, Sir Lynn
TELLERS FOR THE NOES:


Silverman, Sydney (Nelson)
Usborne, H. C.
Mr. Pearson and Mr. Simmons.

Clause 21.—(OVERSEAS TRADE CORPORA TIONS: DISQUALIFICATIONS.)

Mr. John Arbuthnot: I beg to move, in page 15, line 31, to leave out the second "the" and to insert "such".

The Deputy-Chairman: It may be convenient to discuss with this Amendment, that in page 15, line 32, to leave out "produced by it".

Mr. Arbuthnot: As the Bill stands, Clause 21 (1) only allows a company producing commodities overseas to sell its own production through brokers or agents in this country. It seems to us that if a company buys products of the same type as it produces itself and sells those, those products having been bought overseas, the company will for that reason lose its overseas trade corporation status, if the Clause is left as it stands. In our view there is no reason to differentiate in this respect between what a company produces itself and what, of the same type of product, it buys overseas. It ought to be able to sell at home produce bought overseas without forfeiting its status as an overseas trade corporation.
10.30 p.m.
The change that we suggest in the two Amendments still restricts the benefit of the proviso to producer companies. The benefit will not be extended to companies which are purely merchants. We therefore hope that my right hon. Friend the Chancellor of the Exchequer will be able to look favourably upon the Amendments, which would be an improvement to the Bill.

Mr. Powell: There is no good reason why an overseas trade corporation should be restricted to selling through general brokers in this country exclusively its own produce and should be disqualified if it sells any produce of the same kind produced by, possibly, indigenous producers operating in the same territory. I therefore advise the Committee to make the minor alteration which is suggested in the two Amendments.

Mr. G. R. Strauss: Many of my hon. Friends are surprised that the Financial Secretary has accepted the Amendments. They may, indeed, go much further than the Chancellor has in mind, and far beyond the purpose which he has suggested to the Committee, in permitting companies to get these tax concessions.
We are told that the purpose of these concessions is to enable our overseas trading companies to operate on equality with resident companies and not to be at a handicap with companies from other countries who are operating in the same locality. The Amendments, however, go much further. It may well be that a company which is operating abroad and is selling its produce on a recognised market in London could do a substantial business in selling the produce of other companies on that same terminal market.
It is quite possible, for example, for a company that is producing rubber to sell it, quite properly according to the principles underlying the Bill, on the London Commodity Exchange, but it might do a substantial and profitable business in dealing with rubber produced by other companies and selling it on the


Commodity Exchange through the agents there. Is it proposed that such profits, for example, should be exempt from Income Tax and Profits Tax, as proposed in the Bill?
It would seem that if the Government accept the Amendments, profits which have nothing to do with overseas trading by a company in a certain area, which produces goods in that area and ships them to this country or elsewhere, will be exempt front Profits Tax and from Income Tax. This goes far beyond the purpose which the Chancellor has told us is the object of the Clauses in this Part of the Bill. Therefore, I invite the Financial Secretary to give some further explanation and to comment on the points which I have made, otherwise we will surely have to divide against this proposal.

Mr. Powell: The right hon. Member for Vauxhall (Mr. Strauss) quite correctly said that the object of these provisions is to place a resident company of a defined kind on the same footing as a non-resident company. It is true that non-resident companies producing, for example, rubber in the same area in which an overseas trade corporation is carrying on a trade might sell those commodities directly or indirectly on a general market in this country; but no revenue would be lost and no disadvantage suffered if that rubber is sold by an overseas trade corporation, because the profits arising on the operations of those non-resident companies are in any case outside the scope of United Kingdom Income Tax.

Mr. Strauss: An overseas trading company which is selling on a London terminal market produce not produced by itself normally gets some profit by so doing. It would get some commission. Maybe it would share the commission with the broker on the commodity exchange, and would make some profit for its pains, get some recompense, which might be substantial. Surely that is quite beyond what the Chancellor of the Exchequer has in mind or has put before the Committee?

Mr. Powell: The terms of the proviso are so drawn as to exclude sales where an agent or broker could be charged in respect of profits or gains arising to the company from its sales—for the specific reason the right hon. Gentleman has mentioned.

Mr. Edward du Cann: I congratulate my hon. Friend on accepting the Amendment, which will be very helpful, particularly, for example, to firms in Australasia which are engaged in the pastoral business and will have the task of selling their clients' wool in this country in the forthcoming wool sales. Had the position not been dealt with, companies would have had to form subsidiary companies and that would have meant some difficulty for them, and they would, perhaps, have lost goodwill. This is not an important matter to those companies because of the tax itself, but it is important to them in providing a customary and looked-for service to their clients, and I repeat my congratulations to my right hon. and hon. Friends.

Mr. Mitchison: I cannot take part in these congratulations, for this Part of the Bill is already a sieve, and I did not expect the Government to go drilling large holes in it even at this late hour of the night. What exactly is this about? It is not a question whether the Treasury does or does not lose Income Tax on this or that transaction. This is a very special concession to be extended to companies which carry on a trade in this country. Having in Clause 20 more or less prevented or attempted to prevent that from happening, we find that this subsection of this Clause first says that that is not to happen and then provides a single exception. The single exception is a company which is producing commodities of some kind or another abroad and selling those commodities through a broker in a "recognised market." whatever that may be, in this country. That is the one exception.
Now that company is to be allowed to carry on an entirely different and much wider business by selling commodities of the same kind not produced by itself. The result is, since there is no quantitative restriction, and a company may produce commodities on quite a small scale abroad, that it may sell those commodities on quite a small scale in this way in this country and it may sell the produce of half a dozen other companies or produce coming from somewhere else altogether. The company is in fact as much—or more—a merchanting company as a producing one, and will get the benefit of this concession simply because the Government, having started to give a


tax concession for one purpose, are wholly unable to restrain their untimely and excessive generosity towards their friends in the City. I see no reason whatever for a concession of this sort. I think it remarkable that the Amendment should even have been moved, and inconceivable that a Government, having any sense of proportion or really intending to work for the purpose they gave as their reason in the first place, should have accepted it even at this late hour of the night. I shall have no hesitation in voting against the Amendment.

Sir P. Spens: I hope that the Chancellor will give us this concession. The hon. and learned Member for Kettering (Mr. Mitchison) has not really explained what the proviso does. This is a proviso of disqualification, not a proviso of qualification. This is a case of a producer company which produces abroad and, to the advantage of everybody in this country, normally sells its goods through one of the recognised markets in this country. If, unfortunately, it sends £1 worth of somebody else's goods with its own products

to be sold, it automatically disqualifies itself as an overseas trade corporation. This is a disqualification Clause far too strict in its wording and it would be reasonable to make the Amendment.

Mr. Mitchison: Does not the proviso limit the disqualification, and is not the effect of it that if a company sells £1 worth of its own produce and £1 million of other people's produce of the same kind it is still to be treated as an overseas trade corporation?

Sir P. Spens: The hon. and learned Member can take that absurd example if he likes and can assume that everybody will abuse every advantage given to them to increase our trade but, as worded, this is a strict disqualification Clause. One slip on the part of the consigner to the market here can result in a company being disqualified for good as an overseas trade corporation.

Question put, That the second "the" stand part of the Clause:—

The Committee divided: Ayes 179, Noes 225.

Division No. 145.]
AYES
10.41 p.m.


Ainsley, J. W.
Ede, Rt. Hon. J. C.
Jeger, Mrs. Lena (Holbn &amp; St. Pncs, S.)


Allaun, Frank (Salford, E.)
Edelman, M.
Jenkins, Roy (Stechford)


Allen, Scholefield (Crewe)
Edwards, Rt. Hon. Ness(Caerphilly)
Johnson, James (Rugby)


Awbery, S. S.
Edwards, W. J. (Stepney)
Jones, Rt. Hon. A. Creech(Wakefield)


Bacon, Miss Alice
Evans, Albert (Islington, S.W.)
Jones, David (The Hartlepools)


Baird, J.
Fernyhough, E.
Jones, Elwyn (W. Ham, S.)


Balfour, A.
Fienburgh, W.
Jones, J. Idwal (Wrexham)


Bence, C. R. (Dunbartonshire, E.)
Finch, H. J.
Jones, T. W. (Merioneth)


Benson, G.
Fletcher, Eric
Kenyon, C.


Beswick, Frank
Forman, J. C.
King, Dr. H. M.


Blackburn, F.
Fraser, Thomas (Hamilton)
Lee, Frederick (Newton)


Blenkinsop, A.
Gibson, C. W.
Lee, Miss Jennie (Cannock)


Blyton, W. R.
Gooch, E. C.
Lewis, Arthur


Boardman, H.
Gordon Walker, Rt. Hon. P. C.
Logan, D. G.


Bottomley, Rt. Hon. A. G.
Grenfell, Rt. Hon. D. R.
Mabon, Dr. J. Dickson


Bowden, H. W. (Leicester, S.W.)
Grey, C. F.
McInnes, J.


Boyd, T. C.
Griffiths, David (Rother Valley)
McKay, John (Wallsend)


Braddock, Mrs. Elizabeth
Griffiths, William (Exchange)
MacMillan, M. K. (Western Isles)


Brookway, A. F.
Hale, Leslie
MacPherson, Malcolm (Stirling)


Broughton, Dr. A. D. D.
Hall, Rt. Hn. Glenvil (Colne Valley)
Mahon, Simon


Brown, Rt. Hon. George (Belper)
Hannan, W.
Mallalieu, E. L. (Brigg)


Burke, W. A.
Hayman, F. H.
Mann, Mrs. Jean


Butler, Mrs. Joyce (Wood Green)
Henderson, Rt. Hn. A. (Rwly Regis)
Marquand, Rt. Hon. H. A.


Carmichael, J.
Herbison, Miss M.
Mason, Roy


Champion, A. J.
Hewitson, Capt. M.
Mayhew, C. P.


Chetwynd, G. R.
Hobson, C. R. (Keighley)
Mikardo, Ian


Coldrick, W.
Holmes, Horace
Mitchison, G. R.


Collick, P. H. (Birkenhead)
Houghton, Douglas
Monslow, W.


Collins, V.J.(Shoreditch &amp; Finsbury)
Hoy, J. H.
Moody, A. S.


Corbet, Mrs. Freda
Hubbard, T. F.
Mort, D. L.


Craddock, George (Bradford, S.)
Hughes, Emrys (S. Ayrshire)
Moyle, A.


Cronin, J. D.
Hughes, Hector (Aberdeen, N.)
Mulley, F. W.


Crossman, R. H. S.
Hunter, A. E.
O'Brien, Sir Thomas


Cullen, Mrs. A.
Hynd, H. (Accrington)
Oram, A. E.


Dalton, Rt. Hon. H.
Hynd, J. B. (Attercliffe).
Orbach, M.


Davies, Harold (Leek)
Irvine, A. J. (Edge Hill)
Oswald, T.


Deer, G.
Isaacs, Rt. Hon. G. A.
Owen, W. J.


de Freitas, Geoffrey
Janner, B.
Paling, Rt. Hon. W. (Dearne Valley)


Delargy, H. J.
Jay, Rt. Hon. D. P. T.
Palmer, A. M. F.


Dye, S.
Jeger, George (Goole)
Pannell, Charles (Leeds, W.)




Pargiter, G. A.
Skeffington, A. M.
Ungoed-Thomas, Sir Lynn


Parker, J,
Slater, Mrs. H. (Stoke, N.)
Usborne, H. C.


Parkin, B. T.
Slater, J. (Sedgefield)
Watkins, T. E.


Pearson, A.
Smith, Ellis (Stoke, S.)
Wells, William (Walsall, N.)


Pentland, N.
Snow, J. W.
Wheeldon, W. E.


Plummer, Sit Leslie
Soskice, Rt. Hon. Sir Frank
White, Henry (Derbyshire, N.E.)


Popplewell, E.
Sparks, J. A.
Willey, Frederick


Price, Philips (Gloucestershire, W.)
Steele, T.
Williams, David (Neath)


Probert, A. R.
Stewart, Michael (Fulham)
Williams, Rev. Llywelyn (Ab'tillery)


Randall, H. E.
Stonehouse, John
Williams, W. R. (Openshaw)


Redhead, E. C.
Stones, W. (Consett)
Willis, Eustace (Edinburgh, E.)


Rhodes, H.
Strachey, Rt. Hon. J.
Wilson, Rt. Hon. Harold (Huyton)


Roberts, Albert (Normanton)
Strauss, Rt. Hon. George (Vauxhall)
Winterbottom, Richard


Roberts, Goronwy (Caernarvon)
Summerskill, Rt. Hon. E.
Woodburn, Rt. Hon. A.


Robinson, Kenneth (St. Pancras, N.)
Swingler, S. T.
Woof, R. E.


Rogers, George (Kensington, N.)
Sylvester, G. O.
Yates, V. (Ladywood)


Royle, c.
Taylor, Bernard (Mansfield)
Zilliacus, K.


Short, E. W.
Taylor, John (West Lothian)



Silverman, Julius (Aston)
Thomas, Iorwerth (Rhondda, W.)
TELLERS FOR THE AYES:


Silverman, Sydney (Nelson)
Thornton, E.
Mr. J. T. Price and Mr. Wilkins


Simmons, C. J. (Brierley Hill)
Timmons, J.





NOES


Aitken, W. T.
Fletcher-Cooke, C.
Lambert, Hon. G.


Allan, R. A. (Paddington, S.)
Fraser, Hon. Hugh (Stone)
Langford-Holt, J. A.


Alport, C. J. M.
Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Leather, E. H. C.


Arbuthnot, John
Freeth, Denzil
Leavey, J. A.


Armstrong, C. W.
Gammans, Dame Ann Muriel
Legge-Bourke, Maj. E. A. H.


Ashton, H.
Garner-Evans, E. H.
Legh, Hon. Peter (Petersfield)


Atkins, H. E.
George, Lady Megan Lloyd(Car'then)
Lindsay, Hon. James (Devon, N.)


Baldock, Lt.-Cmdr. J. M.
Gibson-Watt, D.
Lindsay, Martin (Solihull)


Baldwin, A. E.
Glover, D.
Linstead, Sir H. N.


Balniel, Lord
Godber, J. B.
Lloyd, Maj. Sir Guy (Renfrew, E.)


Barber, Anthony
Gomme-Duncan, Col. Sir Alan
Lucas, Sir Jocelyn (Portsmouth, S.)


Barlow, Sir John
Goodhart, Philip
Lucas, P. B. (Brentford &amp; Chiswick)


Barter, John
Gough, C. F. H.
Lucas-Tooth, Sir Hugh


Barter, Sir Beverley
Gower, H. R.
Macdonald, Sir Peter


Bell, Philip (Bolton, E.)
Graham, Sir Fergus
Mackeson, Brig. Sir Harry


Bennett, F. M. (Torquay)
Grant, W. (Woodside)
Mackie, J. H. (Galloway)


Bevins, J. R. (Toxteth)
Green, A.
McLean, Neil (Inverness)


Bidgood, J. C.
Gresham Cooke, R.
MacLeod, John (Ross &amp; Cromarty)


Biggs-Davison, J. A.
Grimston, Hon. John (St. Albans)
Macmillan, Maurice (Halifax)


Birch, Rt. Hon. Nigel
Grosvenor, Lt.-Col. R. G.
Maitland, Hon. Patrick (Lanark)


Bishop, F. P.
Gurden, Harold.
Manningham-Buller, Rt. Hn. Sir R.


Black, C. W.
Hall, John (Wycombe)
Markham, Major Sir Frank


Body, R. F.
Harris, Frederic (Croydon, N.W.)
Marples, Rt. Hon. A. E.


Boothby, Sir Robert
Harrison, Col. J. H. (Eye)
Marshall, Douglas


Bowen, E. R. (Cardigan)
Harvey, Sir Arthur Vere (Macclesfd)
Mawby, R. L.


Boyd-Carpenter, Bt. Hon. J. A.
Harvey, Ian (Harrow, E.)
Maydon, Lt.-Comdr. S. L. C.


Boyle, Sir Edward
Harvey, John (Walthamstow, E.)
Medlicott, Sir Frank


Braine, B. R.
Heald, Rt. Hon. Sir Lionel
Milligan, Rt. Hon. W. R.


Bromley-Davenport, Lt.-Col. W. H,
Heath, Rt. Hon. E. R. G.
Molson, Rt. Hon. Hugh


Brooman-White, R. C.
Henderson, John (Cathcart)
Morrison, John (Salisbury)


Bullus, Wing Commander E. E.
Henderson-Stewart, Sir James
Mott-Radclyffe, Sir Charles


Burden, F. F. A,
Hesketh, R. F.
Nabarro, G. D. N.


Butcher, Sir Herbert
Hill, Mrs. E. (Wythenshawe)
Neave, Airey


Channon, Sir Henry
Hill, John (S. Norfolk)
Nicholls, Harmar


Chichester-Clark, R.
Hinchingbrooke, Viscount
Nicholson, Godfrey (Farnham)


Clarke, Brig. Terence (Portsmth, W.)
Hirst, Geoffrey
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)


Cole, Norman
Hobson, John(Warwick &amp; Leam'gt'n)
Nugent, G. R. H.


Conant Maj. Sir Roger
Holland-Martin, C. J.
Oakshott, H. D.


Cooke, Robert
Hornby, R. P.
O'Neill, Hn. Phelim (Co. Antrim, N.)


Cooper, A. E.
Hornsby-Smith, Miss M. P.
Page, R. G.


Cordeaux, Lt.-Col. J. K.
Horobin, Sir Ian
Pannell, N. A. (Kirkdale)


Corfield, Capt. F. V.
Howard, Hon. Greville (St. Ives)
Partridge, E.


Craddock, Beresford (Spelthorne)
Howard, John (Test)
Pickthorn, K. W. M.


Crosthwaite-Eyre, Col. O. E.
Hudson, W. R. A. (Hull, N.)
Pike, Miss Mervyn


Cunningham, Knox
Hurd, A. R.
Pilkington, Capt. R. A.


Currie, G. B. H.
Hutchison, Michael Clark (E'b'gh, S.)
Pitt, Miss E. M.


Dance, J. C. G.
Hylton-Foster, Rt. Hon. Sir Harry
Pott, H. P.


D'Avigdor-Goldsmid, Sir Henry
Iremonger, T. L.
Powell, J. Enoch


Deedes, W. F.
Irvine, Bryant Godman (Rye)
Prior-Palmer, Brig. O. L.


Digby, Simon Wingfield
Jennings, Sir Roland (Hallam)
Profumo, J. D.


Donaldson, Cmdr. C. E. McA.
Johnson, Dr. Donald (Carlisle)
Raikes, Sir Victor


Drayson, G. B.
Johnson, Eric (Blackley)
Ramsden, J. E.


du Cann, E. D. L.
Jones, Rt. Hon. Aubrey (Hall Green)
Rawlinson, Peter


Eden, J. B. (Bournemouth, West)
Joseph, Sir Keith
Redmayne, M.


Elliott, R.W.(N'castle upon Tyne. N.)
Kaberry, D.
Rees-Davies, W. R.


Errington, Sir Eric
Keegan, D.
Remnant, Hon. P.


Farey-Jones, F. W.
Kerby, Capt. H. B.
Rippon, A. G. F.


Finlay, Graeme
Kerr, Sir Hamilton
Robinson, Sir Roland (Blackpool, S.)


Fisher, Nigel
Kimball, M.
Robson Brown, Sir William







Rodgers, John (Sevenoaks)
Storey, S.
Vickers, Miss Joan


Roper, Sir Harold
Studholme, Sir Henry
Wade, D. W.


Ropner, Col. Sir Leonard
Summers, Sir Spencer
Wakefield, Edward (Derbyshire, W.)


Schofield, Lt.-Col. W.
Sumner, W. D. M. (Orpington)
Walker-Smith, Rt. Hon. Derek


Scott-Miller, Cmdr. R.
Taylor, Sir Charles (Eastbourne)
Wall, Major Patrick


Sharples, R. C.
Taylor, William (Bradford, N.)
Ward, Rt. Hon. G. R. (Worcester)


Shepherd, William
Teeling, W.
Ward, Dame Irene (Tynemouth)


Simon, J. E. S. (Middlesbrough, W.)
Temple, John M.
Whitelaw, W. S. I.


Smithers, peter (Winchester)
Thomas, Leslie (Canterbury)
Williams, Paul (Sunderland)


Spearman, Sir Alexander
Thompson, Kenneth (Walton)
Williams, R. Dudley (Exeter)


Spence, H. R. (Aberdeen, W.)
Thompson, Lt.-Cdr. R. (Croydon, S.)
Wills, G. (Bridgwater)


Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)
Thorneycroft, Rt. Hon. P.
Wood, Hon. R.


Stanley, Capt. Hon. Richard
Tilney, John (Wavertree)
Woollam, John Victor


Stevens, Geoffrey
Turton, Rt. Hon. R. H.
Yates, William (The Wrekin)


Steward, Harold (Stockport, S.)
Tweedsmuir, Lady



Steward, Sir William (Woolwich, W.)
Vane, W. M. F.
TELLERS FOR THE NOES:


Stoddart-Scott, Col. Sir Malcolm
Vaughan-Morgan, J. K.
Mr. Bryan and Mr. Hughes-Young.

Word "such" there inserted.

Further Amendment made: In page 15, line 32, leave out "produced by it".—[Mr. Arbuthnot.]

Mr. Gordon Walker: I beg to move, in page 15, line 37, to leave out from the beginning to the first "a" in line 38.
It would perhaps be convenient for the Committee to discuss at the same time the subsequent Amendment, in line 42, to leave out from "Corporation" to the end of the subsection.
The effect of these Amendments would be to leave out the mere sale of exports overseas from the tax exemption that will be given to overseas trade corporations. There is a conflict of argument on the Amendments. In economic principle there is something to be said for encouraging exports. The balance of payments would be better if we could find some means of encouraging exports without encouraging investment of overseas capital, from the pure point of view of the balance of payments.
Although there is an economic case for the encouragement of exports by the means proposed in the Bill, we feel that the arguments against it become overwhelming. The Royal Commission was very uncertain whether or not exports should be included. In Paragraph 662 of its Report it said:
…if any advance towards exemption of overseas profits were decided upon"—
it was not at that stage certain—
it would be well to start with those concerns the profits of which were most obviously a wholly foreign product.
That means oil, cocoa and things overseas, and not exports from this country. Therefore the Royal Commission was in favour of excluding exports, at any rate to start with, and of starting with things that are grown in plantations abroad.

Our main objection to the inclusion of exports is that it complicates administration of this Measure almost beyond endurance.

The inclusion of exports leads to the necessity for these anti-avoidance Clauses in the Bill, which will complicate our tax system very greatly and which we believe will be very largely ineffective, because without much difficulty people will be able to evade them. Once we bring in exports as a thing the profits of which will be exempt from tax, we have to bring in the artificial pretence of trading at arms length when really two departments of the same firm are concerned. That is why there are so many anti-evasion measures in the Bill. We have to pretend that a manufacturing company here and its exporting subsidiary are trading at arms length when everyone knows that they are one and the same thing. Because we have to do that we get all these difficulties.

The Board of Inland Revenue gave very powerful arguments directed in the main to saying that if we include exports we shall get an intolerable administrative problem. It said that in many cases profits can be allocated practically at will when dealing with two companies pretending to be trading at arms length, but which are not. Memorandum 109, paragraph 16, said:
The type of case likely to give moss trouble would be that of the manufacturer in this country who exported from a permanent establishment overseas 
That means in terms of this Bill an overseas trade corporation. The Board says this very thing would cause administrative difficulty.
The international complications of including exports would be very great. The Bill has provisions the purpose of which is to keep us within the terms of the


G.A.T.T., but everyone will know, foreign traders and Governments will know, that those provisions will be largely inoperative and they will be able to quote the Board of Inland Revenue to that effect. It will be extremely difficult, everyone knows it always is, to enforce these pretended deals at arms length which are not genuine deals at arms length.

So far as I see, if we include exports we shall have broken a pledge the Government gave very recently. It is quoted in the Eighth Report of O.E.E.C.—"Europe Today", in page 77. That is a decision to which, presumably, we were a party and it says:
To promote fair competition in international trade a decision of January, 1955, prohibited the extension of artificial aids to exports and provided that a number of specifically designated aids should be abolished before the 1st January, 1956.
When we look at the aids which were being abolished to which we were a party we find that it says:
The remission calculated in relation to exports of direct tax…
That is exactly what the Bill does; it remits taxes calculated in relation to exports. Can the Chancellor tell us how, presumably having given our word to abolish this sort of thing in January, 1955, to come into operation in 1956, in this Bill we are flatly breaking it?

Although there is something to be said for it on economic grounds, we feel that the case against including exports is overwhelming administratively and internationally. We therefore agree with the Royal Commission that we should start this sort of thing, if we are to do it at all, by leaving exports out. We base ourselves on the recommendations of the Royal Commission and, unless we get a satisfactory explanation, we shall express our view in the Division Lobby.

11.0 p.m.

Mr. Thorneycroft: As I understand it, there is a broad measure of agreement as to what we ought to do if we can. The right hon. Gentleman said very clearly in his opening remarks that if it is possible to help the hived-off export organisation, the help should be given. He went further and said that as far as he was concerned it should be No. 1 in the economy. After all, he said, it is a very good thing to help investment, but from the point of view of the balance of payments, what we

should be concentrating on is doing our level best to help exports. We are thus in the happy position that we are all trying to do the same thing.
Having decided what his objective should be, the right hon. Gentleman recoiled somewhat from the obstacles and complexities which stood between him and its attainment. May I urge him to have a little courage in this matter and not to be deterred by memoranda from the Inland Revenue, even though that is a great organisation? As I am sure he discovered when he was a Minister, there are a hundred-and-one reasons against doing anything in this world which one wants to do. Much has happened since then, much new thought has been devoted to the question and a Report has been made by the Royal Commission. He need not worry about the Royal Commission; it expressly recommended this. It was the minority who dissented from that recommendation.

Mr. Gordon Walker: The majority recommended that it should be started without exports.

Mr. Thorneycroft: If the hon. Member will look at paragraph 676 he will see, as I read the paragraph, that the recommendation was that it should be done. Some of the difficulties were set out. At any rate, it was the view of the minority that the majority had recommended it, because they put in a minute of dissent. I think the position is reasonably plain.
In any event, do not let us worry too much about either the memoranda or the Royal Commission but consider the matter ourselves, as a Committee, because on our decision is decided what is to be done. The right hon. Gentleman is shocked a little at the administrative difficulties. Of course there are administrative difficulties, but the Ministers who plead administrative difficulties are often criticised, and sometimes rightly criticised. The object of Ministers should be to try to get over the administrative difficulties.
It is true that the introduction of the exports subsidiary raises certain problems of its own, but there are a great number of problems in this, quite apart from the exports side. There are all the switching cases which we were considering earlier. In those cases we found that we had to


insert certain provisions to prevent tax evasion.
The right hon. Gentleman is right in saying that when we reach Clause 28—we will not debate it now because we shall have an opportunity to do so later—we have to put in special provisions for ensuring that these two parties deal at arms length, and it is perfectly true that in subsection (2) of this Clause we lay down certain provisions to ensure that no element of subsidy enters into this at all. The right hon. Gentleman referred to the O.E.E.C. Report. I am fairly familiar with what happens at the O.E.E.C., and I can assure him that there is no element here of subsidy such as he mentioned in that Report. Any foreign company could buy on precisely the same terms as this overseas subsidiary. It could buy free on board a British ship on exactly the same terms.

Indeed, I am grateful to the right hon. Gentleman for drawing attention to what is an important point. It gives me an opportunity of stating publicly that we do not intend to administer the provisions of our tax law so as to snatch an unfair or subsidised advantage over any of our competitors. We are prepared to trade with others as we ask them to trade with us—on fair terms and in open competition.

I hope the whole Committee agrees with the right hon. Gentleman that we ought to do this if we can. If we are agreed that we ought to do something if we can, and if the Inland Revenue, the Treasury and the Chancellor of the Exchequer are prepared to attempt it, I think we should try to do it.

Question put, That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 218, Noes 172.

Division No. 146.]
AYES
[11.6 p.m.


Aitken, W. T.
Donaldson, Cmdr. C. E. McA.
Hornsby-Smith, Miss M. P.


Allan, R. A. (Paddington, S.)
Drayson, G. B.
Horobin, Sir Ian


Alport, C. J. M.
du cann, E. D. L.
Howard, Hon. Greville (St. Ives)


Arbuthnot, John
Eden, J. B. (Bournemouth, West)
Howard, John (Test)


Armstrong, C. W.
Elliott, R. W. (N'castle upon Tyne. N.)
Hudson, W. R. A. (Hull, N.)


Ash ton, H.
Errington, Sir Eric
Hughes-Young, M. H. C.


Atkins, H. E.
Farey-Jones, F. W.
Hurd, A. R.


Baldock, Lt.-Cmdr. J. M.
Finlay, Graeme
Hutchison, Michael Clark (E'b'gh, S.)


Baldwin, A. E.
Fisher, Nigel
Hylton-Foster, Rt. Hon. Sir Harry


Balniel, Lord
Fletcher-Cooke, C.
Iremonger, T. L.


Barber, Anthony
Fraser, Hon. Hugh (Stone)
Irvine, Bryant Godman (Rye)


Barlow, Sir John
Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Jennings, Sir Roland (Hallam)


Barter, John
Freeth, Denzil
Johnson, Eric (Blackley)


Baxter, Sir Beverley
Gammans, Lady Ann Muriel
Jones, Rt. Hon. Aubrey (Hall Green)


Bell, Philip (Bolton, E.)
Garner-Evans, E. H.
Joseph, Sir Keith


Bevins, J. R. (Toxteth)
George, J. C. (Pollok)
Kaberry, D.


Bidgood, J. C.
Gibson-Watt, D.
Keegan, D.


Biggs-Davison, J. A.
Glover, D.
Kerby, Capt. H. B.


Birch, Rt. Hon. Nigel
Godber, J. B.
Kerr, Sir Hamilton


Bishop, F. P.
Gomme-Duncan, Col. Sir Alan
Kershaw, J. A.


Black, C. W.
Goodhart, Philip
Kimball, M.


Body, R. F.
Gough, C. F. H.
Lambert, Hon. G.


Boothby, Sir Robert
Gower, H. R.
Langford-Holt, J. A.


Bowen, E. R. (Cardigan)
Graham, Sir Fergus
Leather, E. H. C.


Boyd-Carpenter, Rt. Hon. J. A.
Grant, W. (Woodside)
Leavey, J. A.


Boyle, Sir Edward
Green, A.
Legge-Bourke, Maj. E. A. R.


Braine, B. R.
Gresham Cooke, R.
Legh, Hon. Peter (Petersfield)


Brooman-White, R. C.
Grimston, Hon. John (St. Albans)
Lindsay, Hon. James (Devon, N.)


Bullus, Wing Commander E. E.
Grosvenor, Lt.-Col. R. G.
Lindsay, Martin (Solihull)


Burden, F. F. A.
Gurden, Harold
Linstead, Sir H. N.


Butcher, Sir Herbert
Hall, John (Wycombe)
Lloyd, Maj. Sir Guy (Renfrew, E.)


Channon, Sir Henry
Harris, Frederic (Croydon, N.W.)
Lucas, Sir Jocelyn (Portsmouth, S.)


Chichester-Clark, R.
Harrison, Col. J. H. (Eye)
Lucas, J. B. (Brentford &amp; Chiswick)


Clarke, Brig. Terence (Portsmth, W.)
Harvey, Sir Arthur Vere (Macclesfd)
Lucas-Tooth, Sir Hugh


Cole, Norman
Harvey, Ian (Harrow, E.)
Macdonald, Sir Peter


Conant, Maj. Sir Roger
Harvey, John (Walthamstow, E.)
Mackeson, Brig. Sir Harry


Cooke, Robert
Heald, Rt. Hon. Sir Lionel
Mackie, J. H. (Galloway)


Cooper, A. E.
Heath, Rt. Hon. E. R. G.
McLean, Neil (Inverness)


Cordeaux, Lt.-Col. J. K.
Henderson, John (Cathcart)
MacLeod, John (Ross &amp; Cromarty)


Corfield, Capt. F. V.
Henderson-Stewart, Sir James
Macmillan, Maurice (Halifax)


Craddock, Beresford (Spelthorne)
Hesketh, R. F.
Manningham-Buller, Rt. Hn. Sir R.


Crosthwaite-Eyre, Col. O. E.
Hill, Mrs. E. (Wythenshawe)
Markham, Major Sir Frank


Cunningham, Knox
Hill, John (S. Norfolk)
Marshall, Douglas


Currie, G. B. H.
Hinchingbrooke, Viscount
Mathew, R.


Dance, J. C. G.
Hirst, Geoffrey
Mawby, R. L.


D'Avigdor-Goldsmid, Sir Henry
Hobson, John (Warwick &amp; Leam'gt'n)
Maydon, Lt.-Comdr. S. L. C.


Deedes, W. F.
Holland-Martin, C. J.
Medlicott, Sir Frank


Digby, Simon Wingfield
Hornby, R. P.
Milligan, Rt. Hon. W. R.




Molson, Rt. Hon. Hugh
Rippon, A. G. F.
Temple, John M.


Morrison, John (Salisbury)
Robinson, Sir Roland (Blackpool, S.)
Thomas, Leslie (Canterbury)


Mott-Radclyffe, Sir Charles
Rodgers, John (Sevenoaks)
Thompson, Kenneth (Walton)


Nabarro, G. D. N.
Roper, Sir Harold
Thorneycroft, Rt. Hon. P.


Neave, Airey
Ropner, Col. Sir Leonard
Tilney, John (Wavertree)


Nicholls, Harmar
Schofield, Lt.-Col. W.
Turton, Rt. Hon. R. H.


Nicholson, Godfrey (Farnham)
Scott-Miller, Cmdr. R.
Tweedsmuir, Lady


Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)
Sharples, R. C.
Vane, W. M. F.


Nugent, G. R. H.
Shepherd, William
Vaughan-Morgan, J. K.


Oakshott, H. D.
Simon, J. E. S. (Middlesbrough, W.)
Vickers, Miss Joan


O'Neill, Hn. Phelim (Co. Antrim, N.)
Smithers, Peter (Winchester)
Wakefield, Edward (Derbyshire, W.)


Page, R. G.
Spearman, Sir Alexander
Walker-Smith, Rt. Hon. Derek


Pannell, N. A. (Kirkdale)
Spence, H. R. (Aberdeen, W.)
Wall, Major Patrick


Partridge, E.
Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)
Ward, Rt. Hon. G. R. (Worcester)


Pike, Miss Mervyn
Stanley, Capt. Hon. Richard
Ward, Dame Irene (Tynemouth)


Pilkington, Capt. R. A.
Stevens, Geoffrey
Whitelaw, W. S. I.


Pitman, I. J.
Steward, Harold (Stockport, S.)
Williams, Paul (Sunderland, S.)


Pott, H. P.
Steward, Sir William(Woolwich, W.)
Williams, R. Dudley (Exeter)


Powell, J. Enoch
Stoddart-Scott, Col. Sir Malcolm
Wills, G. (Bridgwater)


Prior-Palmer, Brig. O. L.
Storey, S.
Wood, Hon. R.


Profumo, J. D.
Studholme, Sir Henry
Woollam, John Victor


Ramsden, J. E.
Summers, Sir Spencer
Yates, William (The Wrekin)


Rawlinson, Peter
Sumner, W. D. M. (Orpington)



Redmayne, M.
Taylor, Sir Charles (Eastbourne)
TELLERS FOR THE AYES:


Rees-Davies, W. R.
Taylor, William (Bradford, N.)
Lieutenant-Commander Richard


Remnant, Hon. P.
Tee ling, W.
Thompson and Mr. Bryan.




NOES


Ainsley, J. W.
Grey, C. F.
Mulley, F. W,


Allaun, Frank (Salford, E.)
Griffiths, David (Rother Valley)
O'Brien, Sir Thomas


Allen, Scholefield (Crewe)
Griffiths, William (Exchange)
Oram, A. E.


Awbery, S. S.
Hale, Leslie
Orbach, M.


Bacon, Miss Alice
Hall, Rt. Hn. Glenvil (Colne Valley)
Oswald, T.


Baird, J.
Hannan, W.
Paling, Rt. Hon. W. (Dearne Valley)


Bence, C. R. (Dunbartonshire, E.)
Hayman, F. H.
Palmer, A. M. F.


Benson, G.
Henderson, Rt. Hn. A. (Rwly Regis)
Pannell, Charles (Leeds, W.)


Beswick, Frank
Herbison, Miss M.
Pargiter, G. A.


Blackburn, F.
Hewitson, Capt. M.
Parker, J.


Blenkinsop, A.
Hobson, c. R. (Keighley)
Parkin, B. T.


Blyton, W. R.
Holmes, Horace
Pearson, A.


Boardman, H.
Houghton, Douglas
Pentland, N.


Bottomley, Rt. Hon. A. G.
Hoy, J. H.
Plummer, Sir Leslie


Bowden, H. W. (Leicester, S.W.)
Hubbard, T. F.
Popplewell, E.


Boyd, T. C.
Hughes, Emrys (S. Ayrshire)
Price, Philips (Gloucestershire, W.)


Braddock, Mrs. Elizabeth
Hughes, Hector (Aberdeen, N.)
Probert, A. R.


Brock way, A. F.
Hunter, A. E.
Randall, H. E.


Broughton, Dr. A. D. D.
Hynd, H. (Accrington)
Redhead, E. C.


Brown, Rt. Hon. George (Belper)
Hynd, J. B. (Attercliffe)
Rhodes, H.


Burke, W. A.
Irvine, A. J. (Edge Hill)
Roberts, Albert (Normanton)


Butler, Mrs. Joyce (Wood Green)
Isaacs, Rt. Hon. G. A.
Roberts, Goronwy (Caernarvon)


Carmichael, J.
Janner, B.
Robinson, Kenneth (St. Pancras, N.)


Champion, A. J.
Jay, Rt. Hon. D. P. T.
Rogers, George (Kensington, N.)


Chetwynd, G. R.
Jeger, George (Goole)
Royle, C.


Coldrick, W.
Jeger, Mrs. Lena (Holbn &amp; St. Pncs, S.)
Short, E. W.


Colliok, P. H. (Birkenhead)
Jenkins, Roy (Stechford)
Silverman, Julius (Aston)


Collins, V. J. (Shoreditch &amp; Finsbury)
Johnson, James (Rugby)
Silverman, Sydney (Nelson)


Corbet, Mrs. Freda
Jones, David (The Hartlepools)
Simmons, C. J. (Brierley Hill)


Craddock, George (Bradford, S.)
Jones, Elwyn (W. Ham, S.)
Skeffington, A. M.


Cronin, J. D.
Jones, J. Idwal (Wrexham)
Slater, Mrs. H. (Stoke, N.)


Crossman, R. H. S.
Jones, T. W. (Merioneth)
Slater, J. (Sedgefield)


Cullen, Mrs. A.
Kenyon, c.
Smith, Ellis (Stoke, S.)


Dalton, Rt. Hon. H.
King, Dr. H. M.
Soskice, Rt. Hon. Sir Frank


Davies, Harold (Leek)
Lee, Frederick (Newton)
Sparks, J. A.


Deer, G.
Lee, Miss Jennie (Cannock)
Steele, T.


de Freitas, Geoffrey
Lewis, Arthur
Stewart, Michael (Fulham)


Delargy, H. J.
Logan, D. G.
Stonehouse, John


Dye, S.
Mabon, Dr. J. Dickson
Stones, W. (Consett)


Ede, Rt. Hon. J. C.
Molnnes, J.
Strauss, Rt. Hon. George (Vauxhall)


Edelman, M.
McKay, John (Wallsend)
Summerskill, Rt. Hon. E.


Edwards, Rt. Hon. Ness (Caerphilly)
MacMillan, M. K. (Western Isles)
Swingler, S. T.


Edwards, W. J. (Stepney)
Macpherson, Malcolm (Stirling)
Sylvester, G. O.


Evans, Albert (Islington, S.W.)
Mahon, Simon
Taylor, Bernard (Mansfield)


Fernyhough, E.
Mallalieu, E. L. (Brigg)
Taylor, John (West Lothian)


Fienburgh, W.
Mann, Mrs. Jean
Thomas, Iorwerth (Rhondda, W.)


Finch, H. J.
Marquand, Rt. Hon. H. A.
Thornton, E.


Fletcher, Eric
Mason, Roy
Timmons, J.


Forman, J. C.
Mayhew, C. P.
Ungoed-Thomas, Sir Lynn


Fraser, Thomas (Hamilton)
Mikardo, Ian
Usborne, H. C.


Gibson, C. W.
Mitchison, G. R.
Watkins, T. E.


Gooch, E. G.
Monslow, W.
Wells, William (Walsall, N.)


Gordon Walker, Rt. Hon. P. C.
Moody, A. S.
Wheeldon, W. E.


Grenfell, Rt. Hon. D. R.
Moyle, A.
White, Henry (Derbyshire, N.E.)







Willey, Frederick
Wilson, Rt. Hon. Harold (Huyton)
Yates, V. (Ladywood)


Williams, David (Neath)
Winterbottom, Richard
Zilliacus, K.


Williams, Rev. Llywelyn (Ab'tillery)
Woodburn, Rt. Hon. A.



Willis, Eustace (Edinburgh, E.)
Woof, R. E.
TELLERS FOR THE NOES:




Mr. Wilkins and Mr. J. T. Price.

Mr. EDWARD WAKEFIELD (Lord Commissioner of the Treasury) and Mr. JAMES SIMMONS, who acted as Tellers in Division No. 144, came to the Table.

Mr. Wakefield: We have to report that in the Division at twenty minutes past Ten o'clock we erroneously stated the number of "Noes" to have been 215 instead of 204, which was the correct number.

The Deputy-Chairman (Major Sir William Anstruther-Gray): I direct the Clerk to correct the number in the Journal accordingly.
To report Progress and ask leave to sit again.—[Mr. P. Thorneycroft.]

Committee report Progress; to sit again Tomorrow.

HOUSE, BOURNEMOUTH (PURCHASE)

Motion made, and Question proposed, That this House do now adjourn. [Mr. Hughes-Young.]

11.17 p.m.

Mr. John Eden: I should like this evening to raise a matter concerning the affairs of constituents of mine, Mr. and Mrs. Charman. Until a very short time ago they lived in my constituency at 46, Denmark Road, and they have suffered a series of misfortunes which form, I think, a suitable subject to be raised in this House.
I should be grateful to have the opinion of my hon. Friend in this matter before we finally adjourn tonight. The facts are that Mr. and Mrs. Charman purchased the house known as 46, Denmark Road, in June, 1952, from a family of the name of Long, and they took over the remaining mortgage facilities which had been arranged with a building society. That society had previously, I understand, surveyed the property in 1951, and, therefore, the Charmans, when they took over the property, did not think it necessary to have a further survey. They assumed, for one thing, that since the building society was prepared to make available to them the remainder of the mortgage facilities, the house was in a

state of reasonable repair. They thought that it was not necessary to incur any further expenditure by having a second and private survey.

They very soon found that that was very far from the true position. The house was discovered to be in an appallingly bad state of repair. The roof had sunk, the guttering was broken, the eaves underneath were rotten, there was no damp course, and throughout the premises dry rot was apparent. Apart from all this, conditions were seriously aggravated every time there was heavy rain. Severe flooding took place because this house was in the lowest part of that particular road. Storm water naturally flowed to the lowest part of the roadway, and unfortunately the drainage system was very much overtaxed. When one remembers the tremendous building development in this part of Bournemouth in the last twenty or thirty years, one can realise that that had far outstripped the facilities of the normal drainage scheme.

The result was that when heavy rain came serious flooding occurred in and around number 46. In fact, only two weeks after Mrs. Charman's son was born, she had to stand up to her waist in water in an effort to try to keep the floods from rising and mounting the stairs. She had to go so far as lifting floorboards in a downstairs room in an attempt to get the water to drain away. The flooding had far worse effects on the sewerage system of the property, because it caused the W.C. to flood back. This in itself caused considerable hardship to the family, consisting of a young daughter and a young son.

Before long, the walls and floors, the carpets, the curtains and, indeed, the clothing of the Charmans suffered seriously from damp. They became extremely mildewy and were extremely unhealthy. The children suffered from rashes and the daughter, at the age of three, got a serious hysteria and could not sleep at night, particularly during rain. The parents' nerves, too, suffered adversely. This was a great misfortune for the husband, who was working on night shift on extremely important work at a nearby aircraft factory. He was,


naturally, worried by what was happening to his wife and children, which to some extent adversely affected his work.

I have made a number of inquiries into how this set of circumstances has arisen. During my inquiries with the town clerk of Bournemouth and with the director of the building society, I have found a number of points which I believe to be disturbing and on which I should like the opinion of my hon. Friend the Parliamentary Secretary. The first is an extract from a letter sent to me by the Town Clerk of Bournemouth, in which he says:
The essential cause of Mrs. Charman's trouble is that Bournemouth has outgrown its sewerage system and the sewers which were laid at the beginning of the century are now inadequate.
It also became apparent from the course of my correspondence with the building society that the society had to some extent accepted a certain sense of responsibility in this matter. Whilst legally, perhaps, the society had nothing for which to answer, and whilst in law, I am quite ready to understand, it was more than adequately covered by clauses contained in the agreements it had entered into with the Charmans, nevertheless it was prepared to go so far as to express a token of sympathy with the Charmans by accepting reduced payments from them.

Apparently, the building society was so concerned by the reports which had been made that it organised a separate survey to provide an up-to-date report on the condition of the property. This survey confirmed that the storm water drainage system had, in fact, been connected with the sewerage system. The sewerage system itself was already very much out of date, and since the two were connected together and there had been this enormous amount of building, obviously the whole thing was totally inadequate to meet the needs of that area of Bournemouth.

I cannot understand why the council allowed this development to take place without making any moves at all to improve upon the sewerage facilities provided in that part of Bournemouth sooner than it has done. It seems to me that the council has allowed this to go on for much too long without making any imaginative proposals whatever to avoid the sort of conditions which have arisen and of which the council has been well aware for some time.

The building society has now made matters to some extent worse for the Charmans by refusing to transfer the mortgage facilities to any other purchaser. In a letter, the society expresses the feeling
that in view of the condition of the property, it would be improper for us to encourage a third party to buy at a figure which would be much in excess of the present market value.
How has this come about? I wonder what has really happened between 1952, when the Charmans took over the property and were accepted by the building society, and 1957. What happened to cause this property to deteriorate so rapidly? Can it be that it was already in a poor condition at the very start and that the building society did not adequately survey the property and did not satisfy itself about the condition of the house?

The Charmans now find themselves in a most unfortunate position. They decided to leave the house, because, naturally, they could not continue to live in those conditions. They took with their remaining capital a 22 ft. caravan, in which they lived until just the other week. Now the husband has been forced to leave his job on the night shift at the aircraft factory and has taken other employment at less remuneration, but with a house which goes with the job, a tied house, as it were, to enable his family to have proper quarters and to keep his family together. It seems they have fallen on extremely unfortunate circumstances through no fault of their own.

I ask my hon. Friend whether he does not agree that to some extent the local authority has a responsibility in this matter. The town clerk in a letter to me the other day said that when the new sewerage scheme, which has at last been the subject of a public inquiry, is in operation
the causes of the unsatisfactory condition of the house will be removed, and subject to any repairs or cleaning operation, which may be necessary being carried out, there should be no further trouble".
In my submission, this is an admission by the town clerk that the county borough has a responsibility in this matter, and that had the whole of this drainage and sewerage problem been set right before now, the Charmans would not have inherited those unfortunate conditions in which they found themselves.

This is a family who have tried hard to help themselves, tried hard to make a life of their own, and who have a full sense of responsibility. They are not trying to fob responsibility on to the local authority. They have not tried anything of that kind. They have done their best to look after themselves in what they believe to be the right way, and through no fault of their own they have come upon this great misfortune. Yet no one else seems to be ready to accept any responsibility in this matter—neither the building society, which shelters behind some legal formalities, nor the local authority, which claims that it is not its concern. I ask my hon. Friend whether, in these days of enlightened welfare, such circumstances should be allowed to continue.

11.28 p.m.

The Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. J. R. Bevins): I agree indeed with my hon. Friend the Member for Bournemouth, West (Mr. J. Eden) that this is a most unfortunate case, and if there were anything at all I could do or say which would help this unfortunate family I would very gladly do it or say it. The facts of the case are hardly in dispute. The house, in Denmark Road, Winton, Bournemouth, was built in the days before the Winton Urban District Council was taken over by Bournemouth in 1901. The house is more than sixty years old.
It was bought, as my hon. Friend said, by Mr. Charman in 1952, for, I think, £2,000. At that time the building society concerned agreed to transfer the outstanding mortgage of £1,400 to Mr. Charman. The building society had had the property surveyed in 1951, when it was purchased by the previous owner, and one assumes, as my hon. Friend did, that at that time the condition of the property was found to be reasonable. I suppose that it was for that reason that my hon. Friend's constituent did not think that a survey was necessary when he undertook the purchase and did not use the services of an agent or of another professional man.
Since September, 1951, the borough engineer of Bournemouth has certainly had reports of flooding in the Winton area on several occasions. I believe that on one occasion he had a report of flood-

ing actually within the precincts of this house. I do not dispute for a moment that it is also the case that the health of the man and his wife and of at least one of the children may have suffered as a result of the circumstances in which they have been living.
My hon. Friend has invited me to deal with three questions. The first, that of rehousing, is now largely an academic one. Although this gentleman applied for a local authority house to the Bournemouth Corporation he did not at the time qualify because he had not been on the list for the requisite period of six months. In any case, he has since taken another post which carries a house with it and the family is at present housed. As to the responsibility of the building society when it arranged its mortgage facilities with Mr. Charman, the position is that my right hon. Friend has no jurisdiction in relation to either general control over societies or control over individual transactions.
Section 9 of the Building Societies Act, 1939, uses these words:
Where a society makes to a member an advance for the purpose of its being used in defraying the purchase price of freehold or leasehold estate, the society shall be deemed to warrant to the member that the purchase price is reasonable unless before any contract requiring the member to repay the advance is entered into the society gives to the member a notice in writing, in such form as may be prescribed, stating that the making of the advance implies no such warranty.
I understand that building societies, generally speaking, serve a notice disclaiming any responsibility for the reasonableness of either the purchase price or the condition of the property. I assume from what my hon. Friend has said that such a disclaimer was incorporated in the contract in this case.
I hesitate to say anything on whether the building society should or should not take any further action. I certainly think, and I am sure that my hon. Friend will agree, that this case serves to emphasise how important it is that prospective purchasers of houses should take professional advice before embarking upon purchase. Time and time again it has been demonstrated that it simply is not good enough to rely either upon appearances or upon the results of earlier surveys. I would take this opportunity to urge that any person, and certainly one lacking in professional knowledge, should certainly consult at any rate a citizens' advice


bureau before embarking upon house purchase, as a preliminary, of course, to taking professional advice.
The third question concerned the position of the county borough of Bournemouth and the sewerage facilities in the area. My hon. Friend has suggested that the local authority may have some responsibility for what has occurred. I do not deny that the Bournemouth local authority has, and has had for a long time, a very formidable sewerage problem. In May this year a public local inquiry was held by one of the Ministry's engineering inspectors. This was concerned with an application for consent to borrow the better part of £1 million to provide sewerage in the Winton area, as well as a new sewage disposal works for the whole of Bournemouth. While the report of that inquiry is not yet ready, there can be no doubt at all that the Winton area ought to be given the proposed relief sewer as soon as it is humanly possible. This would take over from what is now a very unsatisfactory network of cross-connected soil and surface water sewers which are responsible for the backing up of sewage and flooding at various points over a considerable area in the district.
As I have said, the problem is not a new one to Bournemouth. It has been well known for at least twenty years, and as long ago as 1938 the local authority thought of tackling it. The new relief sewer will have to discharge through an enlarged trunk sewer into a new sewage disposal works, and while these works certainly should be built as quickly as possible, it is the reckoning of the local authority that the relief sewer will not be working for about seven years. It may be possible with a great deal of

effort to contract that period to about five years, but I cannot put a more hopeful figure upon it than that.
As to the general responsibilities of a local authority in matters of this sort, local authorities have a general duty under the Public Health Act to provide such public sewers as may be necessary for effectually draining their district for the purposes of that Act, but other than this they have no special responsibility in the case of the flooding of individual property, which unfortunately occurs in many of our large cities and in built-up areas.
In regard to the rather more pointed question as to whether my hon. Friend's constituent might have any rights of redress against the local authority, I have taken advice on that point and I am informed that in cases of this kind which have been before the courts it has been held that if there is evidence not of active negligence but simply of a local authority not doing something which it is its general duty to do—that is, non-feasance as opposed to misfeasance—then the private citizen has no remedy by way of damages.
I am very sorry indeed that I cannot be more helpful to my hon. Friend or his constituent. I agree that this is a very distressing case. I think it is a pity that Mr. Charman did not take professional advice when he was embarking upon this purchase. I think, too, that it may be a pity that the local authority has not improved its sewerage before now, but beyond that I am afraid that I cannot on behalf of my right hon. Friend accept any responsibility in the matter.

Question put and agreed to.

Adjourned accordingly at twenty-two minutes to Twelve o'clock.